Wall Street Seems To Believe That Endless Gridlock And Political Turmoil Will Be Good For America

It is difficult not to admire the relentless optimism on Wall Street.  A divided Congress is going to guarantee two years of gridlock and political turmoil in Washington, but many in the financial community are choosing to interpret the election results as a positive sign.  They remember the “gridlock” during the Obama years, and they are hopeful that the next couple of years will be at least somewhat similar.  The Dow Jones Industrial Average shot up 545 points on Wednesday, and that was the largest post-midterm rally that we have seen in 36 years.  Stock prices normally go up the day after midterm elections, but Wednesday’s rally was definitely unusual…

Wednesday’s post-midterms rally was larger than the average gain that follows the contests. Goldman Sachs noted the S&P 500 has averaged a gain of 0.7 percent from the day before the elections to the day after midterms. Wednesday marked the biggest post-midterms gain for both the Dow and S&P 500 since the day after the 1982 contests, when the indexes surged 4.3 percent and 3.9 percent, respectively.

To a certain extent, it is likely that investors were greatly relieved that the worst case scenario did not play out.  As I noted on Monday, a blue wave that would have resulted in Democrats taking control of both houses of Congress would have meant big trouble for Wall Street, and many are very thankful that we were able to avoid that outcome…

Investors also avoided the most-feared Wall Street outcome, a so-called “blue wave,” or Democratic sweep of both chambers of Congress. That could have put the president’s economic policies under assault and boosted the odds of a Democratic House pushing for Trump’s impeachment.

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