As election season approaches, many investors wonder how the political landscape will impact their portfolios. While the idea of a divided government—where no single party controls both chambers of Congress—might sound like a recipe for legislative gridlock, history tells a different story when it comes to the stock market. In fact, a divided Congress has often been a positive force for market growth, creating a more stable environment for businesses, investors, and private wealth management alike.
At Finley Davis Financial, our team of experienced wealth managers believe in guiding our clients through periods of political uncertainty with confidence. Through personalized financial planning, we help you identify and take advantage of the opportunities that arise—even in times of political division.
Historically, markets have shown a preference for a divided Congress. Why? Because it reduces the likelihood of major, disruptive policy changes, allowing businesses and private wealth management strategies to operate with more certainty. When neither party has full control of Congress, more moderate, compromise-driven policies tend to get passed, which are generally less risky for the economy and markets.
According to research by LPL Financial, the S&P 500 has averaged an annual gain of 17.2% when Congress is divided, compared to 13.4% when one party controls both the House and Senate. This data highlights how markets thrive on the balance of power and the reduced threat of significant legislative shifts. These insights are critical for long-term financial planning.
While political gridlock can be frustrating from a legislative perspective, it’s often seen as a positive for markets. When a divided Congress leads to gridlock, large-scale policy changes—such as significant tax hikes or sweeping regulatory reforms—are unlikely to pass without bipartisan support. This environment of stability is ideal for both investors and estate planning.
For investors, this gridlock translates into less uncertainty and fewer surprises. CFRA Research found that between 1945 and 2020, the S&P 500 gained 13.6% per year when Congress was divided, compared to 10.7% when one party held full control of both the presidency and Congress. In times of gridlock, markets can focus on long-term economic fundamentals, rather than reacting to the possibility of sudden political shifts. This is why maintaining a long-term investment strategy, supported by sound financial planning, is essential.
Michael Cembalest, Chairman of Market and Investment Strategy at JPMorgan Asset Management, notes: "Markets prefer predictable policy environments. Divided government offers stability in policy, which is often preferred by investors." This stability is crucial for financial advisors and private wealth management professionals when creating long-term strategies.
A divided Congress creates an environment where businesses can plan for the future with greater confidence. With fewer risks of abrupt regulatory or tax changes, companies have more predictability to make long-term investments in innovation, expansion, and hiring. This business confidence is a key driver of economic growth and can lead to strong corporate earnings—one of the primary factors that drive stock market performance and wealth management success.
The stock market is forward-looking, and when investors see businesses operating with confidence and stability, they respond by investing. This stability leads to a more predictable environment for corporate profits, which, in turn, supports market growth. Estate planning professionals also benefit from this stability when advising clients on the best strategies to protect their wealth.
Some of the most significant periods of market growth in U.S. history have occurred under divided government. For example, from 1995 to 2000, during the Clinton presidency and a Republican-controlled Congress, the S&P 500 soared by more than 200%, marking one of the longest bull markets in history.
During this period, the combination of strong business growth, innovation in technology, and a stable policy environment created the perfect conditions for market expansion. This shows that political division doesn’t have to be a negative for investors or financial planning—in fact, it can create the balanced environment that markets need to thrive.
How can you position your investments to take advantage of a divided Congress?
A divided government can create different opportunities across sectors. For example, one party may push for renewable energy initiatives, while the other focuses on traditional energy. Having a diversified portfolio helps ensure your investments benefit from growth across various sectors, a critical part of long-term private wealth management.
As history shows, market growth continues over time, regardless of political division. Sticking to a long-term investment strategy that aligns with your goals will help you stay on track through political uncertainty. This is where a well-thought-out financial planning strategy becomes vital.
It’s easy to get caught up in election hype or worry about how a specific political outcome will affect your investments. However, reacting to political events with short-term decisions can often lead to missed opportunities. A steady hand and a long-term approach are critical to achieving financial success in a divided political landscape.
At Finley Davis Financial, we understand how political uncertainty can weigh on your investment decisions. But history has shown that markets can thrive even in a divided government. Our team of experienced financial advisors is here to help you navigate this environment with smart, data-driven strategies that position you for long-term growth.
Through personalized financial planning and private wealth management strategies, we’ll work with you to create a diversified, resilient investment plan that takes advantage of the opportunities that exist, regardless of the political landscape. Don’t let political division define your financial future—partner with Finley Davis Financial and thrive in any market environment.
Past performance does not guarantee future results. Diversification does not guarantee a profit or protect against a loss.