The election, for the most part, is behind us now. While some legal challenges and recounts remain, as well as a couple of runoffs for U.S. Senate seats, it appears that Democrat Joe Biden will win the Presidency. In addition, Democrats will retain control of the House of Representatives (albeit with a smaller majority) and Republicans could retain control of the Senate (pending two Senate runoff races in Georgia).
According to investment strategist Wes Moss, who is the host of a financial radio show titled “Money Matters,” this scenario, if it holds, would likely prevent any prevent any large-scale policy changes from occurring over the next couple of years, at least. As Moss puts it, “We’ve voted in government gridlock.”
Stock Market Cheers
From an investing standpoint, says Moss, this is a good thing. In fact, the stock market cheered the election results, rising sharply in the days following the election.
Why do investors favor government gridlock? Mainly because they don’t like uncertainty and change. “Businesses shudder at the thought of large and looming policy changes,” says Moss. Sweeping legislation affecting taxes, healthcare and regulations can usually only be accomplished with bipartisan support or when one party controls the Presidency and both houses of Congress.
Moss gathered data to see how the stock market has performed historically under different combinations of political party control in Washington. Here’s what he found:
- Democratic President and Democratic control of the Senate and House of Representatives — Average S&P 500 return of 9.3%
- Republican President and Republican control of the Senate and House of Representatives — Average S&P 500 return of 12.9%
- Democratic President and split control of Congress — Average S&P 500 return of 13.6%
- Republican President and split control of Congress — Average S&P 500 return of 8.8%
As you can see, if we end up with a Democratic President and split control of Congress as appears likely now, this will actually be the best scenario for investors from a historical perspective. Why? Mainly because it will largely result in government gridlock and prevent any major policy changes from taking place.
Politics is Over-Emphasized
After such a long and often bitter campaign, it’s easy to feel emotional about the election results and how they might affect your personal finances and investments. Some people feel elated and believe the results will be beneficial for their personal financial situation, while others feel despondent and believe just the opposite.
However, Moss believes that way too much emphasis is placed by many people on the impact that politics has on economic and investment performance. “In the end, it’s not Washington that propels the American economy,” he says. “That force is the American worker.”
Businesses large and small provide the means for 150 million employees to get up every day and go to work — whether this is making sales calls, treating patients, building houses or preparing tax returns. And this is true regardless of whether our political leaders are Republicans, Democrats or Independents. Moss calls this The Army of American Productivity.
“It is slow, steady and relentless,” says Moss. “The collective push drives our nation’s companies and, in turn, the most powerful economy in the world. No election, stimulus package, pandemic or party can slow the relentless grind of the American dream.”
Please feel free to contact us if you would like to talk more about the election and its potential impact on your finances and investments.