Some parts of Wall Street are worried that a Democratic sweep this November would be bad for stocks — but history suggests otherwise
- An increase in taxes and regulatory oversight are reasons often cited why a Democratic sweep this November would be bad for the stock market, but history suggests otherwise.
- An analysis from LPL Financial showed that the S&P 500 was positive 83% of the time and posted an average annual return of 13.2% when Democrats controlled both Congress and the White House.
- Last week, Goldman Sachs pointed to prediction markets that showed Democrats are favored to win both houses of Congress and the presidency, and estimated that Joe Biden's tax plan would reduce S&P 500 earnings by 12% if passed into law.
- President Trump weighed in last week, saying that a Joe Biden presidency would "disintegrate" stock market returns.
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Some investors are worried about what the impact of a Democratic sweep would be on the stock market this coming November.
A note from Goldman Sachs last week observed that the prediction markets are suggesting Democrats could be victorious in the national elections. The probabilities of Democrats winning the White House, Senate, and House of Representatives are 62%, 61%, and 85%, respectively.
A boost in taxes and more regulatory initiatives are often cited as reasons why a Democratic sweep would be bad for stocks. Goldman Sachs projected that Joe Biden's tax proposal would result in a 12% reduction in S&P 500 earnings in 2021 if passed into law.
President Trump also weighed in on the issue, saying last week that a Joe Biden presidency would cause stock market gains to "disintegrate and disappear."
But investors need not worry about poor stock market performance and a potential Democratic sweep if history is a guide, according to Ryan Detrick, senior market strategist at LPL Financial.
Looking at historical S&P 500 data since 1950, Detrick said in a tweet on Tuesday that stocks were up 83% of the time and posted an average annual return of 13.2% when Democrats controlled the White House and Congress.
Democratic control led by President Jimmy Carter posted the best annual return of 31.7% in 1980, while the worst annual return under Democratic control was -10.0% in 1966, led by President Lyndon B. Johnson.
Simply put, "there are many worries out there, but this shouldn't be one of them," according to Detrick.
UBS agrees. The Wall Street firm recently said a Democratic sweep led by Biden would be positive for stocks, and outlined 10 different trades that could generate profits from a Biden presidency.
