With a week having passed since Election Day, it would seem the path forward, politically speaking, should be relatively clear. Americans came out in force to cast their votes as the turnout for the 2020 election was the highest seen in 50 years, and as of last weekend, Joe Biden was declared by the Associated Press to be the president-elect. And as the president-elect, he has already begun to take presidential steps like the announcement of a Covid-19 task force to advise him during the transition period until he takes office.
Countering this scenario of the transfer of power is President Trump and his current decision to not concede the election to his competitor. To support his challenge of the stated outcome, numerous lawsuits have been filed in states where a victor has not yet been declared or the margin of votes between the two candidates is extremely narrow. Judges in several states have already dismissed or ruled against some of the suits. Recounts of ballots are also being requested as part of the president’s effort to show the country that he was victorious in his re-election effort.
One area of government that does not seem to be in dispute is the House of Representatives, which is expected to have the Democratic party remain in control despite a projected loss of several seats to the Republicans.
The Senate, while expected to see the Republicans maintain a majority of seats, could see a change in control based on the outcome of two special runoff elections in Georgia scheduled for January 5.
Assuming the current scenario stays in place with Democrats controlling the White House and House of Representatives while the Republicans retain a majority in the Senate, the United States maintains the status quo, a divided government otherwise known as “gridlock.” If it does occur, looking as far back historically as 1932, it will be the first time a newly elected president from the Democratic party will begin their term with a Congress split between the two major parties.
If the Senate ultimately turns “blue” and president-elect Biden has a Democratic Congress to work with, the outcome is not necessarily a bad one for equity investors. The last time this occurred was 1932 with the election of Franklin Roosevelt, and the return for the Standard & Poor’s 500 Index was over 45% in 1933. In fact, there have been 34 years since 1932 where Democrats have controlled both houses of Congress and the presidency. The average annualized rate of return for the S&P 500 in those years was 9.4%. By comparison, in years since 1932 during which there has been a Democratic president and a split in Congress, the average annualized return for the S&P 500 is an even higher 13.6%.
Our conclusion from this survey of historical outcomes is that investors would be best served by ensuring their portfolios accurately reflect their investment goals and objectives and not become overly concerned by the political party composition of the U.S. government. If history is any guide, the economic outcome will not be a negative one.
Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.
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