By the way, I’ll be on WSJ.com’s live election show tonight at 9:25 p.m. with MarketWatch’s David Calloway discussing the market implications of gridlock returning to Washington.
Now, the stock market generally like gridlock, because if Washington’s not getting anything done, in general it clears the deck for Wall Street to do what it does so well.
Jeffrey Kleintop, chief market strategist at LPL Financial, lays out the general idea:
Historically, the stock market has performed better under periods of gridlock, but this record is far from consistent. Not surprisingly, other factors appear to bear more weight than politics. On the other hand, the bond market clearly has performed much better during periods of gridlock, most likely because investors assign a lower probability to the passage of new spending initiatives that would increase the debt supply.
But there’s good reason to doubt the conventional wisdom. Nick Godt over at MarketWatch says gridlock actually isn’t good for stocks, citing S&P data going back to 1900.
Standard & Poor’s cranked up its database and found that since 1900, the market performed worst in the two years after midterm elections that yielded total gridlock, with a split Congress, and best under total unity, with a unified Congress and an administration of the same party.