Midterm election results? Markets are more worried about the Federal Reserve
With control of Congress still up for grabs Wednesday following Election Day, some market analysts are signaling that a political gridlock by Republicans may be a positive for Wall Street and the U.S. economy.
Historically, the stock market has performed well both after midterms and also when control of government is divided between parties. The markets have risen in the year following the last 18 midterms — going back to 1950 — according to Barry Gilbert and Jeffrey Buchbinder of LPL Financial.
Markets typically perform well under a divided government because gridlock decreases the likelihood of Congress passing sweeping fiscal legislation. Investors may be cheering the end of uncertainty surrounding the midterms, or showing their anticipation of balanced policy priorities when the parties are sharing power.
Historically, the stock market has performed well both after midterms and also when control of government is divided between parties. The markets have risen in the year following the last 18 midterms — going back to 1950 — according to Barry Gilbert and Jeffrey Buchbinder of LPL Financial.
Markets typically perform well under a divided government because gridlock decreases the likelihood of Congress passing sweeping fiscal legislation. Investors may be cheering the end of uncertainty surrounding the midterms, or showing their anticipation of balanced policy priorities when the parties are sharing power.
"Gridlock is good from a market perspective because of the fact that we don't have to worry about any major tax reform or major regulations over the next two years," Key Advisors Group co-founder Eddie Ghabour said.
However, some other experts believe that investors are paying much closer attention to the Federal Reserve than the makeup of the next Congress.
According to the $Goldman Sachs (GS.US)$ analysts, compared to previous election cycles, politics are no longer taking center stage in discussions with investors. Instead, Wall Street is focused on high levels of federal debt, which recently surpassed $31 trillion, high inflation and rising interest rates.
"Inflation, monetary policy, recession risk and geopolitics have been far more important drivers of equity market moves than the potential for modest changes in US fiscal policy," Goldman Sachs strategists wrote in an analyst note.
$Wells Fargo & Co (WFC.US)$ analysts echoed that sentiment in a note Wednesday, arguing that Federal Reserve monetary policy and the state of the economy will play a bigger role in the market's health.
"Inflation, monetary policy, recession risk and geopolitics have been far more important drivers of equity market moves than the potential for modest changes in US fiscal policy," Goldman Sachs strategists wrote in an analyst note.
$Wells Fargo & Co (WFC.US)$ analysts echoed that sentiment in a note Wednesday, arguing that Federal Reserve monetary policy and the state of the economy will play a bigger role in the market's health.
"The economy's performance and the Federal Reserve's policies to shape its path are likely to matter more than the election results to investment returns, in our view," the strategists said. "This greater importance of the economy and Fed policy remains the focus of our guidance."
Source: Goldman Sachs, LPL Financial, Fox Business, Bloomberg
Source: Goldman Sachs, LPL Financial, Fox Business, Bloomberg
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