by Gary Alexander

January 12, 2021

I’m not liking it, and I’m not even believing it, but when the results came in from the Georgia Senate runoffs late Tuesday night and the violent protestors overran the Capitol building on Wednesday, the Dow Jones index rose 462 points and gold fell by $40 an ounce. Isn’t it supposed to be the other way around?!

As the week went on, the trends continued. From Wednesday morning to Friday’s market close, gold careened down over $100 per ounce, from $1,960 to $1,850 (-5.6%), while stocks soared from the opening on Wednesday to Friday’s close – the Russell 2000 rose 5.7% and NASDAQ rose 3.85%.

Each day, I contacted several friends in the securities and precious metals businesses, including Louis Navellier, and asked if they had any explanation. Few did, but Louis pointed me to his podcast each day, in which he basically reminded us that – as messy as the situation became – Wednesday took a great deal of uncertainty out of the market: Trump had to surrender his challenge, so the Democrats were in control.

The latest Barron’s (January 11, 2021), in its cover story, “The Case for Optimism,” cites these facts:

“History suggests that equities will do fine with Democrats in Washington. The S&P 500 index has returned an average of 14% a year when Democrats have controlled Congress and the White House since 1948, according to DataTrek Research. The Dow Jones Industrial Average has gained an average of 15.7%, according to Bespoke Investment Group.”

Stock Returns and Politics Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Bespoke Investment Group (BIG) looked at the 38 biennial elections since World War II and isolated the 10 times in which the Democrats won control of all three chambers of power – the White House, the Senate, and the House of Representatives. The first eight of those Democratic “clean sweeps” happened over 40 years ago – under Harry Truman (4 years), then Kennedy/Johnson (8 years), and Carter (4 years):

There are some important considerations from those first examples. The Democratic Party in the 1950s and 1960s was primarily run by the Jim Crow “Solid South” Democrats, the kind of segregationists that most modern Democrats would want to erase from their family tree. More importantly to investors, there is another anomaly – that when single-party power gets too strong, investment profits wither away:

  • In 1964, the Democrats had a 155-seat edge in the House (295 to 140), and a similar 68-32 edge in the Senate. LBJ beat Barry Goldwater by 486-52 in the electoral college, so the Democrats had at least a 2-1 edge in all three branches. The result was hubris, deficits, and a 10% market decline.
  • In 1976, Jimmy Carter was swept into power in a reaction against Watergate, along with a huge 149-seat Democratic House edge over Republicans, but the Dow fell 18.2% in his first two years.

This brings us to the only two comparisons that really matter in the current situation – 1992 and 2008.

What Will Happen Between Now and November 2022?

The only times the Democrats controlled the White House and both halls of Congress since 1980 were:

  • 1993-1994 under Bill Clinton, who enjoyed a 78-seat House majority and a 14-seat Senate edge. The Dow gained 16.3% in those two years, while the S&P gained a more modest 5.5%.
  • 2009-2010 under Barack Obama, who enjoyed a similar 77-seat House majority and a 15-seat Senate edge. The Dow gained 29.2% in those two years.

And now:

  • 2021-2022 under Joe Biden, who will soon inherit a slim 11-vote margin in the House and an even slimmer tie-breaking vote in a 50-50 Senate. So far, the Dow is treating him well, too.

I think we all know what happened next: In 1993, President Clinton’s ambitious wife, Lady McClinton, devised an ambitious healthcare plan that was a step too far for most American voters, and so there was a Republican Revolution in the 1994 mid-term elections. The Democrats had controlled the House of Representatives for 40 years, 1954-1994, but the Republicans took control in a massive 104-seat swing, going from a 78-seat deficit (256 to 178) to 26 seats up (230 to 204). In the Senate, Republicans went from 12 seats down (56-44) to four seats up (52-48), and the stock market embarked on a record run.

After an anemic 5.5% gain in Clinton’s first two years, the S&P 500 gained 220% in his next five years:

 Year  S&P 500
  1993   +7.1%
  1994   -1.5%
  1995 +34.1%
  1996   +20.3%
  1997   +31.0%
  1998   +26.7%
  1999   +19.5%
Source: The Almanac Investor

Large Shifts in Partisan Control are Uncommon Pictograph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In a nearly exact instant replay in 2009, President Barack Obama passed a national healthcare plan that Ms. Clinton had once envisioned, and there was another Republican Revolution, spurred by a Tea Party.

In our New Orleans Investment Conference Panel, Charles Krauthammer said, “This wasn’t an election – it was a restraining order.” Even President Obama called it a “shellacking.” The turnaround in House seats was even greater than in 1994 – a shift of 126 seats, from a 256-179 “safe” 77-seat Democrat majority to a strong 49-seat 242-193 Republican majority – and stocks continued rising for a decade!

The ball is now in Mr. Biden’s court. Will he learn from history and maintain a moderate course, or will he attempt to chart a boldly aggressive course of “reforming America” in the left-leaning direction of his vocal progressive wing? If he heeds their siren song, he will likely lose both halls of Congress in 2022.

While we wait, history indicates that we should see positive market gains during the next two years.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
No Safe Haven Bid in the Treasury Market

Sector Spotlight by Jason Bodner
The S&P 500 Will Peak Within a Week

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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