San Francisco: US President Donald Trump has warned that his favourite measure of success, the stock market, is imperiled if voters favour Democrats in next week’s congressional elections.
While not fully accurate — stocks tend to rise regardless of who controls the government — it does bear out that the market has delivered a slightly stronger performance on average when Republicans dominate in Washington.
A Reuters analysis of the past half century shows stocks fared better in the two calendar years after congressional elections, when Republicans control Congress and the presidency than when Democrats controlled the two branches, and at least as well as during times of gridlock. Many investors are now hoping for a continuation of the Republican agenda.
“There is Trump ‘the person’, who is very controversial,” said Stephen Massocca, senior vice president at Wedbush Securities. “And there’s also Trump ‘the agenda’. The Trump agenda, the stock market loves. To the extent it continues, the market will like that.”
Republicans traditionally push pro-business policies such as tax cuts and deregulation, which boost stock prices. The market has, on the whole, given Trump a thumbs-up, with the market rising almost 20 per cent during his presidency so far.
Trump warned in a tweet on Tuesday that a change in Congress would be bad for the market, saying: “If you want your Stocks to go down, I strongly suggest voting Democrat.”
Investors often favour the Washington gridlock because it preserves the status quo and reduces uncertainty. “Traditionally, gridlock is good for the markets. But I think this election is very tricky; I’m not sure that’s the preferred market outcome because a lot of the benefits of the past two years have come from not being in a gridlock environment,” said Mike O’Rourke, chief market strategist at JonesTrading.
Should his fellow Republicans maintain or extend their grip on Congress, Trump may be emboldened to pursue more of his political agenda, including further tax overhauls.
“Our economists believe that two likely consequences of a divided Congress would be an increase in investigations and uncertainty surrounding fiscal deadlines, which could raise equity volatility,” Goldman Sachs said in a report this week.
Over the past 50 years, gridlock has been the norm rather than the exception in Washington, with the presidency and Congress won by one party in just seven out of 25 congressional election years.
