Mythbuster: Russolillo on Stocks During Gridlock

Assuming you haven’t been stuffed in a bus locker at the Port Authority for the last 4 weeks, you’ve probably heard an awful lot about how wonderful political gridlock is for stocks.

The Wall Street Journal’s Steve Russolillo and Standard & Poor‘s numbers guy Sam Stovall have a different tale to tell when analyzing the data since 1900…

Mr. Stovall compared three different political scenarios following midterm elections: total unity with one party in control of the White House and Congress; partial gridlock with a unified Congress and a different party in the White House; and total gridlock with a split Congress…

The Standard & Poor’s 500 has averaged a 7.6% gain in the 67 years since 1900 under total unity. By comparison, the index has averaged a 6.8% return in the 32 years under partial gridlock. And under a total gridlock scenario, like the current situation, the S&P 500 has averaged only a 2% gain.

The flaw here, according to the article, is that the sample size is very small – only 12 years of true total gridlock like what we’ve got now.  Click over for a better idea of all the permutations.

Source:

Contrary to Popular Belief, Gridlock Often Hurts Stocks (WSJ)