Political Gridlock + Stock Market = ???

Thursday, November 4, 2010

Reading through the news commentaries, there are many opinions about what political gridlock means for the stock market.

Election produced the “strong” form of political gridlock

  • Weak form: White House (the executive branch) controlled by one party, Congress (the legislative branch: both Senate and House) by the other
  • Strong form: Congress (the legislative branch) is split, with the Senate controlled by one party and the House by the other. This gridlock means new laws and regulations can be held up or “defeated” by a Senate/House stalemate.

The question is whether that gridlock is desirable for the stock market (business) or not.

Descriptions of gridlock’s potential outcome from today’s news reports

  • “Often hurts”
  • “Could help”
  • “Won’t be good”
  • “Is good”
  • “Could threaten economy”
  • “May not bode well”
  • “No expected impact”
  • “Is bliss”
  • “Might be good”
  • “Is bad”
  • “May well rise”
  • “The best thing”
  • “Spells bad news”
  • “Markets could rally but change may not be permanent”

This broad array of contradictory beliefs is a fitting picture of the political process, itself.

And, then there is this semi-humorous, 76-year old observation:

“Washington papers say: ‘Congress is deadlocked and can’t act.’ I think that is the greatest blessing that could befall this country.”

Will Rogers (1924)

So… Congress’ new party split means uncertainty about legislative action (or inaction). For investors, it likely means a further move from the macro approach to more focus on sector/industry/company developments.

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November 2010