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Shake-up in federal politics could be good for stock market

Shake-up in federal politics could be good for stock market


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SALT LAKE CITY -- A shakeup in the midterm elections next week may mean an extended bump for the stock market. Economists and brokers say gridlock is good for investments.

It's because markets don't like uncertainty, and Republicans regaining the House and possibly the Senate would remove some of that uncertainty, Raymond James branch manager Steve Johnson told KSL NewsRadio.

"The highest returns, if you look historically, have been when the House and the Senate are controlled by the Republicans and the White House is a Democrat," Johnson said. "The second-highest is the other way around."


The highest returns, if you look historically, have been when the House and the Senate are controlled by the Republicans and the White House is a Democrat. The second-highest is the other way around.

–Steve Johnson


Johnson says whenever one party is in control of the House, Senate and White House, that tends to produce the lowest returns in the market.

"It's an interesting phenomenon that I think a lot of people don't either understand or don't want to admit," Johnson said. "Either party in complete control is usually not good from an investment perspective."

Johnson predicts if Republicans have success on Election Day, it may extend the current market rally into 2011.

Conversely, Zions Bank economist Jeff Thredgold says if Democrats hold off Republicans, it could mean a turn the other way for investments.

"If the Democrats were to retain control of the House and the Senate, I think the market would back off a little bit," Thredgold said. "Anything that minimizes uncertainty and provides a little better direction of where we're going is positive for the economy, positive for job growth, and positive for the job market."

Third years in presidential cycles are also good for the stock market. Thredgold says the average jump in the market during "year threes" is 17 percent.

"The stock market does tend to perform better once you get through the midterm elections," Thredgold said.

A Reuters report in September revealed just how often markets see a boost after midterms. It cited a statistic from the Deutsche Bank chief investment strategist: the S&P 500 has produced gains in 18 out of the last 19 midterm election cycles. The S&P returned an average of 13 percent in the six months after midterms and 17 percent over 12 months.

The report also said the Dow Jones Industrial Average rose 24 times and fell five times in the 29 third-calendar years of the presidential cycle since 1891.

E-mail: aadams@ksl.com

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