Posted on Thursday, November 4th, 2010
There’s a general belief that divided government is a good thing for markets because it means that the government is less likely to pass any legislation that doesn’t have broad support among the electorate. The concept is the government can do no harm. But looking at the history of which party was in charge including periods of divided government, the results are as clear as mud. Many articles have been written on the subject, but looking at history, there are very few data points from which to draw any meaningful conclusions. It’s probably as useful as using the Super Bowl indicator or the length of skirts to determine your investment strategy. You can look at limitless data and try to draw conclusions regarding their influence on markets, but just because you find a correlation, it doesn’t mean there is a cause and effect relationship. While it’s an interesting topic, it’s not a good way to manage money…at least, not yet.
In the meantime, if you’re wondering…it’s the Democrat Presidents that have had the best market returns, the best coming with a divided or Republican Congress.