What would it mean for the stock market if Republicans took over at least one house of Congress in the midterm election? The manager of the Congressional Effect Fund, Eric Singer, has a look at the history of returns when there is "a divided or gridlocked government...in which the President and at least one chamber of Congress are from different political parties" versus a "unified government," such as the situation that obtains now, with the Democrats in charge of both the White House and Congress.
Past performance is no guarantee of future results, but the past performance is pretty amazing:
Since 1973, using the price of gold as a deflator (instead of the Consumer Price Index, which has suffered from style drift over the years) real, inflation-adjusted returns for the S&P 500 were a fabulous 15.3 percent gain in "gridlock" years, and a horrible 9.9 percent loss in years with unified government....
Based on the data, the ill effects of unified government apply to both Republican (a 7.7 percent loss) and Democrat (a loss of 11.5 percent) unified governments...
When it comes to split government and real returns, the right answer is "divided we stand, united we fall."
