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.
That's a 36% higher annual return for gridlock years-- not just
bullish, but hugely bullish for the market.
"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"
"There is no doubt that the election of 2006 will have some fairly
profound effects on the business landscape.
"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.
***My blog: Jefferson's Democracy***
- posted 13 years ago