NCPA - National Center for Policy Analysis

Market Performance Under a Divided Government

September 21, 2000

Economists and political observers are speculating that the prospect of a win by presidential candidate Al Gore is worrying investors and spooking the stock market. And the possibility that he could be accompanied to power by Democratic majorities in both the Senate and the House is even more troubling.

They point out that the Dow Jones Industrial Average has dropped more than 600 points since the beginning of September and the Nasdaq has fallen more than 300 points since Gore's poll numbers began their rise.

All of which brings up the subject of how well markets perform when one party controls both the legislative and executive branch versus their performance under a government divided between the two parties.

In the following comparisons, it is assumed that the change of control occurred on November 1 of an election year. The only party to control both Congress and the White House in the past 25 years is the Democratic Party.

  • Over the past 24 years, when the Democrats controlled both the White House and the two houses of Congress -- Nov. 1, 1976-Oct. 31, 1980 and Nov. 1, 1992-October 31, 1994 -- the Dow rose an average of just 2.3 percent annually.
  • The rest of the time, when government was divided between the two parties -- with Republicans controlling either the White House or both houses of Congress -- the Dow rose an average of 23.8 percent annually.
  • If one-party (Democrat) control had prevailed since 1976, then -- based on these average rates of growth -- the Dow today would be 1665, rather than 10,687.

All of which has led pundits to observe that stock markets love governmental gridlock. It has blocked massive new governmental programs, new taxes, and new agencies, departments and regulations.

Source: James K. Glassman (American Enterprise Institute), "The Gore Market," Wall Street Journal, September 21, 2000.


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