The fact that the midterm election will soon be over may be enough to spark a rally for stocks, but investors may also cheer the prospect of Washington gridlock as the best outcome for the market. Republicans look set to win back the House of Representatives in Tuesday's elections. The outcome in the Senate could also be a Republican majority, but that relies on a number of very close races. Either way, there will likely be no consensus between Congress and the White House.
Research, in those November-to-November years when the presidential party lost the majority in one or both houses, the gains were smaller. In general, history shows that the best returns on average have been when a Democratic president faced a divided Congress. The returns in those years averaged 13.6%, but they dropped to 13% when both the House and Senate were controlled by Republicans.
's data shows when Democrats controlled Congress under a Democratic president, stocks averaged a 9.1% gain. Meanwhile, under a Republican president, the stock market on average gains 4.9% when Democrats control Congress, and the market gains 7.3% with a split Congress. Finally, when there would be a Republican in the White House, and the party also controlled the House and Senate, the S & P 500 averaged a 12.9% gain.
. But strategists also note that the Republicans may not get too far pushing through their agenda because President Joe Biden will still have the power to veto. GOP win in 2022 and beyond? Strategas Research says the stock market is signaling that Republicans may sweep the election . The firm constructed portfolios that should do better or worse depending which party has control.
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