Among the most common questions we’ve received in the past few months are: What happens to stocks if Republicans lose control of Congress? And what happens if they retain control of both the House and the Senate?
According to Washington insiders, there is a more likely chance of the House flipping than the Senate, based on polling data. Considering that since the Civil War, the party that controls the White House has lost House seats in 35 out of 38 midterm elections, this is indeed a strong pattern. Should that happen, it could be good for stocks, as historically the best scenario under a Republican president is a split Congress.
“Markets tend to perform quite well under a gridlock scenario, but stocks have obviously done quite well since 2017 with Republicans in control of Congress,” explained LPL Research Chief Investment Strategist John Lynch.
“Even more importantly than how Washington is divided up, though, is to remember that robust corporate profits and solid economic fundamentals drive long-term gains, and those are still quite positive.”
As our LPL Chart of the Day shows, a Democratic president and Republican-controlled Congress has historically been the best combination for the S&P 500 Index, followed closely by a Democratic president and split Congress. Next up, though, is a Republican president and split Congress (which appears to be a reasonable prediction for this November).
For more on what midterms could mean for stocks, be sure to read Midterm Mayhem?