One possible effect of the election next Tuesday is that enough Democrats will be elected to take over one or both chambers of Congress. What's that likely to do to the stock market?
This would bring the government to a condition sometimes tagged "gridlock", where the government spending is severely hindered-- a spending spree by a Democrat congress would be vetoed by the Republican president, while spending proposed by the Republican president wouldn't make it into the congressional budget. Oddly, this is the best case scenario, as far as business is concerned:
The likely result would be legislative "gridlock," which historically has been bullish for stocks, notes Mark Riepe of the Schwab Center for Investment Research. His analysis of election years dating to 1953 shows that the average return of the Standard & Poor's 500 index was
14.1% per year in gridlock years, vs. a 10.4% gain when one party controlled the presidency and both chambers of Congress.(from
"Faced with a Democratic majority in Congress, President Bush would utilize his veto pen a little more readily," says Jerry Webman, chief economist at Oppenheimer Funds.
The USA TODAY "Small Business" columnist notes: "A balance of power in D.C. would help small businesses"
"The first is that because it seems likely today that the Democrats will take back the House, we will once again have divided government. I recall during the 1990s, when Democrats controlled the executive branch and Republicans controlled the legislative branch, that there was much talk of "gridlock" in Washington. But do you know what? Gridlock was not so bad. Too much power in one party, whatever the party, seems to poorly serve both that party and the country.
"So, ironically, with gridlock poised for a comeback, legislative change is in the air. The beauty of divided government is that both parties are forced to compromise to get anything done, and that alone is usually good for all of us."
So, if the Democrats win, the most likely case is to expect government spending to go down, and expect the economy to go up.
-- Franklin Jefferson
***My blog: Jefferson's Democracy***