The stock market will enter its best performing environment if Republicans take control of Congress in midterm elections
- The stock market could be poised for big upside ahead if Republicans win Congress in today's midterm election.
- The most recent election forecast from FiveThirtyEight showed Republicans likely winning the House and Senate.
- "The very best scenario for stocks is a Democratic President and a Republican-controlled Congress," Carson Group's Ryan Detrick said.
Big gains could be ahead for the stock market after a bear market decline of more than 20% shocked investors this year.
That's according to Carson Group's Ryan Detrick, who said in a Tuesday note that the results of today's midterm elections could serve as a big tailwind for stock prices into next year, based on historical data.
An analysis from Detrick showed that since 1950, the S&P 500 delivered its highest average annual return when the power of a Democratic president was checked by a Republican-controlled Congress.
"The very best scenario for stocks is a Democratic President and a Republican-controlled Congress. We saw this last take place in the late 1990s with President Clinton and that wasn't the worst time for investors or the economy," he said.
Under a Democratic president, the S&P 500 saw average annual returns of 16.2% when Republicans controlled both chambers on Congress. That's compared to gains of just 13.6% with a split Congress, and 10.1% with a Congress controlled by Democrats.
Many attribute the strong gains under split control to gridlock in Washington, D.C., as little legislative progress is often made and the economy is allowed to do its own thing without threat of adverse policies.
But divided power in the other direction is generally less lucrative. Under a Republican president, the S&P 500 saw average annual returns of 4.9% when Democrats controlled both chambers of Congress. That's compared to gains of 13.7% with a split Congress, and 6.7% with a Congress controlled by Republicans.
The most recent election forecast from FiveThirtyEight shows that Republicans have an 84% chance to take control of the House of Representatives, and a 59% chance to take control of the Senate.
Regardless of Tuesday's election results, the stock market has plenty of more favorable seasonals going for it into year-end, according to Detrick.
For every midterm election since World War II, stocks have been higher one year later. Additionally, the third year of a newly elected president's term has delivered the strongest returns for the S&P 500 since 1950, with average gains of 20.1%.
"Although we don't know if October 12 is officially the low or not (but we think it very well could be), there could be a lot of opportunity for bulls over the coming year," Detrick said.
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