What the New Congress Will Mean for the Market

What the New Congress Will Mean for the Market

Most of the votes are in. And there is little doubt that the next Senate will be controlled by the Republican Party. Speculation is rife that the next two years will see as much as intractable gridlock and partisan bickering as the last three. But as far as financial markets are concerned it doesn?t matter. Wall Street is set to enter a period of increased productivity and record profits.

Regardless of whether the new Republican majority gets any of its proposed economic policies signed into law, your stocks are likely to do well in the waning years of the Obama presidency. The stock market has, historically, seen a sharp surge after mid-term elections, no matter the outcome.? There is also the fact that the campaign for the presidential election starts the day after the mid-term election. The sitting president has an interest in getting re-elected, or, if he is already in his second term, taking action that will help his party keep the White House. This means President Obama will likely act in ways which will stimulate economic growth. Republicans in Congress also have an interest in doing things that help their party?s image, so they will likely advance measures that do the same. In any case, you will probably see an increase in the value of your portfolio.

Despite what you may have heard, partisan gridlock does not stall markets. The last few years were filled with it, yet markets continued to rise. An article in Money gives some insight into why this is so. It includes this excellent analysis:

In years where a president works with a split Congress, the S&P 500 has risen around 6% on average (not counting dividends), which is slightly below the long-term average of around 7% (again, not counting dividends). However, in years where a president must work with a unified Congress controlled by the opposition party, the average return for stocks is 6.2%.

It?s even better when a Democratic president must work with a Republican-led House and Republican-led Senate, like we?ll have next year. In those instances, the S&P 500 has risen 8.6% annually.

The rest of the article can be read here. If you were counting on the coming years being even better than the last few years in regards to your portfolio, then you have every reason to be optimistic. If historical trends hold, the next couple of years will be a great time for making money from your investments.