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Conversation of the Week

Despite the current gridlock in U.S. politics over another potential shutdown this week, historical data shows that the market has higher annualized returns in periods of divided government.

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Speaker Notes

But isn't a Republican president better for the market than a president from the Democratic party? Not necessarily. There are far more important factors impacting both the economy and the stock market than which political party happens to occupy 1600 Pennsylvania Ave.

Investors considering waiting until the man or woman from their preferred political party occupies the White House should recognize how that would have worked out in the past:

  • A $10,000 investment held in the Dow Jones Industrial Average from 1897 to 2014 would now be worth $4.3 million.
  • Incorporating a strategy where you own stocks whenever your party is in the White House and sell whenever the other party is in the White House would be worth roughly $4 million less!

But wouldn't we all be better off if the political parties were more cooperative and compromising and could get more accomplished? Again, not necessarily. Historically the markets tend to do very well when there is gridlock.

Source: Bloomberg, 12/31/16. Past performance does not guarantee future results.

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