Peter Mallouk: Why Politicians Don’t Matter Much to Markets

Mallouk offered three reasons why politicians’ influence on markets is limited.

1. “The stock market is always pricing in expected future earnings, which trend up regardless of which part is in power. The historical return differential between Republican and Democratic administrations has been virtually nonexistence,” he wrote.
2. “Markets generally favor a division of power,” Mallouk continued, explaining that a divided government can cause political gridlock, which means less change and uncertainty. Markets have mostly gone up no matter which party is in power, however, even if one has total control, he added.
3. “Market volatility leading up to midterm elections typically smooths out,” he noted, adding that the market historically enjoys above-average returns after midterms are finished.

“The U.S. stock market has been positive in every year following a midterm election since WWII,” Mallouk tweeted. “That certainly doesn’t mean it will happen again this time, but the market will likely find its way regardless of the election outcome.”