Mythbuster: The stock market hates gridlock
Maybe that gridlock celebration went a bit too far.
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.Skip to next paragraph
Joshua has been managing money for high net worth clients, charitable foundations, corporations and retirement plans for more than a decade.
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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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