A GOP wave could be bad for the stock market

In general, Birinyi found that going back to 1962 stocks jumped nearly 10% in the two months before and three months after midterm elections. But in elections when there was a change in the majority in either the House or the Senate, the market did considerably worse. In the six midterms going back to 1945 where there was a switch in the party in power in Congress stocks rose just 6% in the five months around the election. What’s more, when the majority switched from Democrats to Republicans, the stock market did even worse. Take a look at the chart at the top of the post. When the donkeys became elephants, stocks tended to fall. The market lost 6% when Republican took power during Truman’s presidency, and 4% when Republicans took over the majority in 2002. The Gringrich-lead 1994 Republican take-over of Washington produced a lackluster 3% stock market return.

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So will this happen again? I think it might. A lot of strategists have been explaining past positive midterm results and why Republicans are a good thing for the market by saying that gridlock is good. Markets and companies perform best when Washington gets out of the way. And a do-nothing-Washington might be the best when the economy is good. But at a time when we have lackluster economic growth, and a ballooning budget deficit to deal with, we need all the help we can get, even if that help comes from Washington.

Read more: http://curiouscapitalist.blogs.time.com/2010/09/20/could-a-republican-sweep-hurt-stocks/#ixzz105ncb5aq

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