Mythbuster: The stock market hates gridlock

Maybe that gridlock celebration went a bit too far.

By , Guest blogger

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    In this Sept. 30 file photo, trader Vito Perri works on the floor of the New York Stock Exchange. Though some have speculated that the new Congressional deadlock will benefit the market, history says otherwise.
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Assuming you haven't been stuffed in a bus locker at the Port Authority for the last 4 weeks, you've probably heard an awful lot about how wonderful political gridlock is for stocks.

The Wall Street Journal's Steve Russolillo and Standard & Poor's numbers guy Sam Stovall have a different tale to tell when analyzing the data since 1900...

Mr. Stovall compared three different political scenarios following midterm elections: total unity with one party in control of the White House and Congress; partial gridlock with a unified Congress and a different party in the White House; and total gridlock with a split Congress...

The Standard & Poor's 500 has averaged a 7.6% gain in the 67 years since 1900 under total unity. By comparison, the index has averaged a 6.8% return in the 32 years under partial gridlock. And under a total gridlock scenario, like the current situation, the S&P 500 has averaged only a 2% gain.

The flaw here, according to the article, is that the sample size is very small - only 12 years of true total gridlock like what we've got now. Click over for a better idea of all the permutations.

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