Markets Up After Midterms Result in Divided Congress
Everyone knows Gordon Gekko’s mantra in Oliver Stone’s Wall Street: “Greed is good.” Well, on the real Wall Street this morning, it seems the motto is “gridlock is good.” After a midterm election evening that saw the House of Representatives flip to Democratic control while Republicans improved their standing in the Senate, markets were up this morning, with the Dow Jones Industrial Average currently sporting a 1.4% gain for the day. So what about this divided government seems to have investors so enthused?
Speaking at the Bloomberg New Economy Forum (as reported on by CNN Business), Carlyle Group co-founder David Rubenstein noted that split governments have typically been good for stocks. He explained, “When you have houses controlled by different parties they actually have to compromise a bit if they’re going to get anything done, and this tends to sometimes be positive.” To Rubenstein’s point, some have speculated that infrastructure improvements could be an area where the two parties might actually be able to come together. If they do, the results could be increased economic activity.
Another potential theory floated by Jefferies chief global strategist Sean Darby is that today’s rise can be attributed to specific worries investors may have had about, as he put it, an “emboldened” GOP agenda. “The concern that an emboldened Republican party retaining both houses might have embraced another round of tax cuts, thereby increasing the deficit, has receded,” he wrote. At the same time, a true “blue wave” may have erased some of the Republican accomplishments that the markets liked, such as the regulatory rollbacks and the slashing of corporate taxes. In that way, this may have been the outcome investors had hoped for.
Of course another theory for why stocks are moving on up today has less to do with the actual results of the election and more to do with the fact that we finally have them. As many have noted, there are few things the markets hate more than uncertainty. Thus, now that we have a better idea of what the next two years will have in store for us, investors can breathe again.
Whatever the true reason that markets seemed pleased with the election outcomes, the sharp increases are welcomed news for a market that’s been a bit bumpy as of late. While today’s activity is certainly no guarantee that things will get back on track, it certainly helps. Add in both the strong jobs report and GDP growth figures we’ve seen in the last month and it looks like that the bull might still have further to run.