What a Divided Government Historically Means for Wall Street

We begin this section by reminding you that past performance does not guarantee future results.  But looking to the past certainly has its value when we try to map out our future investment decisions and expectations.

Many polls and Wall Street Banks expected a Blue Wave this November, meaning a Democrat controlled Congress and White House.  With Republicans winning a handful of crucial seats in the Senate, it is unlikely Democrats have pulled off the sweep.

We will have to wait and see the results in Georgia to see if the Republicans do in fact, control the Senate, or, in the alternative, it is equally split with Kamala Harris casting the deciding vote where a law is undecided through the regular process.

Meanwhile, instead of facing new policies that could cut into corporate earnings like increased corporate taxes and more regulation on major industries, the Republicans are in position to block many of those efforts.  It will be more difficult to reverse some Trump administration tax cuts, as well.  Over the past several weeks we have seen Healthcare and Big Tech companies make more gains with the new optimism due to the Senate outcomes.  Furthermore, the Senate now appears more willing than ever to pass another relief package. 

Regardless of the short-term progress, we can now safely predict that the more controversial policy initiatives by either party will not be the focus until after the 2022 election season at the earliest.  That should also be good for the market’s recovery because as we have said over and over, the market does not like uncertainty.

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