The Best Outcome of This Election  | | Robert Ross
Speculative Assets Specialist | Three weeks ago, I told you the stock market doesn't care who's president. Sure... certain sectors will prefer former president Trump. Those include energy, financials, and crypto. His administration would likely cut regulations by reducing compliance costs, thus raising earnings and stock prices. Trump's social media company Truth Social (DJT) could see a boost as well. And as for vice president Kamala Harris, sectors like alternative energy and healthcare would see a boost from her administration. If she wins, I'd keep an eye on renewables companies like NextEra Energy (NEE) and Centene Corp. (CNC). But while these specific sectors and stocks will do well depending on the administration, history shows the broader market performs well regardless of who's in the White House. 
View larger image But there is one scenario the market likes best. And it's the one I'm hoping for tonight. The Power of Gridlock For investors, the ideal election outcome isn't about who controls the Oval Office or the House or Senate. Instead, it's about ensuring no single party controls all three. The data is clear: markets tend to perform best when there's a balance of power. This isn't just a theory - it's a trend rooted in decades of stock market data. Since 1945, the S&P 500 has averaged an annual return of about 7.4% when the government is divided, according to LPL Financial. Under a unified government, that number drops to 6.7%. And that's no fluke. Looking at returns over the past 70 years, markets performed best under a Democratic president with a Republican Congress, averaging an impressive 16.4% return. But even a Republican president with a Democratic Congress returned a healthy 15.9%. 
View larger image This happens because the stock market values stability. When both sides of the political aisle control different parts of the government, gridlock ensues. While it sounds negative, for investors, it's a blessing. Gridlock reduces the likelihood of sweeping legislative changes, which keeps business regulations, tax policies, and other economic factors stable. Uncertainty's Big Impact When government control is divided, big changes in tax, regulatory, and spending policies are far less likely. When a single party holds the presidency and Congress, they tend to act on their agenda quickly, which often involves changes in tax rates, corporate regulations, and spending priorities. These can have significant ripple effects across various sectors, disrupting business plans and causing sudden changes in corporate costs. Such shifts generate uncertainty - something investors hate. Take the Tax Cuts and Jobs Act of 2017, which was passed when Republicans held the presidency, Senate, and House. It created a sizable rally in the short term... but it also fueled longer-term worries about rising deficits and potential policy reversals under a Democratic administration. 
View larger image On the flip side is the Affordable Care Act (ACA), passed in 2010 when Democrats controlled the presidency, Senate, and House under President Obama. The ACA was a landmark healthcare overhaul with significant implications for the healthcare sector, insurance companies, and small businesses. But while it expanded healthcare coverage, it also introduced new regulations, mandates, and costs for many businesses. In the short term, healthcare stocks experienced both gains and losses as companies adjusted to the new regulations, and insurance providers anticipated an influx of newly insured customers. However, longer-term effects brought uncertainty, as changes in compliance costs and future adjustments under different administrations became concerns for investors, especially when Republicans gained power and pledged to repeal or alter the law. The subsequent flip in control brought more uncertainty as investors anticipated changes to corporate tax rates and business regulations. This cycle of constant change makes it challenging for companies to plan long-term, and that impacts the overall market. Stability via political gridlock allows businesses to make capital investments and expansion plans with more confidence, knowing the "rules of the game" aren't likely to change overnight. A Goldman Sachs analysis supports this view, showing that historically, markets have also been less volatile when the government is divided. That's partly because businesses and investors don't need to "price in" potential changes. Instead, they can rely on the current situation to guide their strategies, enabling them to focus on fundamentals rather than potential shocks from Washington. Gridlock Brings Stability While investors often have strong views on politics, the stock market doesn't care as much about who's in the White House as it does about stability. And the data is clear - gridlock is good for stocks. It may not be exciting, and it might not make for great headlines, but it provides the predictability that companies need to thrive and investors need to succeed. And if you invest in small caps like we do in Breakout Fortunes, now is a great time to add exposure. Historically, small caps have outperformed large caps by 3% in the 12 months after the U.S. election. And with interest rates falling - acting as a tailwind for small caps - I am aggressively adding to positions. But either way, I'll be watching the Senate and House results as much as the presidential tally tonight. Because while candidates come and go, one thing remains: markets hate uncertainty. And the best way to avoid it? Divided government. Stay safe out there, Robert Want more content like this? | | | | | | 
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