A divided government could lead to massive stock market gains: strategist

·Anchor, Editor-at-Large
·2 min read

A president Joe Biden working alongside Republicans in the Senate and Democrats in the U.S. House of Representatives could mean no major tax hikes, no progressive green agenda, no public option for health care and not much of anything else large on the political front.

In other words, it’s the type of “gridlock” down in D.C. that Wall Street has historically loved as a backdrop to push stock prices higher. Going back to 1989 and looking at periods of divided government led by a Democratic president, Jefferies found the average gain for the S&P 500 has been 33.9%. Periods absent a divided government, again dating back to 1989, Jefferies data showed a 22.5% gain.

The S&P 500’s performance was starkly different under a Republican led White House and divided government — stocks have dropped 2.8%.

“If we wind up divided government it will limit the risk, and it lowers the risk that tax increases are around the corner and those are the sort of things that investors like,” Brown Brothers Harriman Chief investment strategist Scott Clemons told Yahoo Finance Live.

Like indeed.

Stocks look poised Thursday to build on their hearty gains delivered post Election Day as Biden inches closer to the presidency. Dow futures surged 411 points as of 6:30 a.m. ET, while the Nasdaq Composite tacked on nearly 3%.

The exterior of the New York Stock Exchange (NYSE) is seen on November 4, 2020 in New York. - Wall Street stocks were in rally mode Wednesday, shrugging off uncertainty over the still-unresolved presidential election and the likelihood of divided government in Washington.The Dow Jones Industrial Average was up 2.0 percent, or about 560 points, at 28,041.28 at around 1530 GMT, (Photo by Kena Betancur / AFP) (Photo by KENA BETANCUR/AFP via Getty Images)
The exterior of the New York Stock Exchange (NYSE) is seen on November 4, 2020 in New York. - Wall Street stocks were in rally mode Wednesday, shrugging off uncertainty over the still-unresolved presidential election and the likelihood of divided government in Washington.The Dow Jones Industrial Average was up 2.0 percent, or about 560 points, at 28,041.28 at around 1530 GMT, (Photo by Kena Betancur / AFP) (Photo by KENA BETANCUR/AFP via Getty Images)

The Nasdaq Composite surged 3.85% on the day after Election Day, marking its best post-election performance in history. Strong upside moves were seen in Facebook, Amazon, Xpeng, Google and DocuSign. The Technology Select Sector SPDR ETF rose about 4%. Meanwhile, the Dow Jones Industrial Average rose more than 700 points in the afternoon only to close up 367 points. The S&P 500 closed up 2.2%.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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