Keith Fitz-Gerald

Which Party Is Actually Better For the Markets?

by Keith Fitz-Gerald   11/18/08

During such periods -- with a Democrat in the White House and a Republican Congress -- the stock market generates an average return of 9.6% a year.

People assume that a presidential administration and Congress with matching political affiliations is the best way to get things done but, in reality, the checks and balances of a mismatched pair helps to ensure that governmental agendas don't go to extremes.

Thus, somewhat surprisingly, political gridlock is actually a reality that puts investors at ease and permits the financial markets to operate efficiently.

Obviously, with Democratic President-elect Barack Obama coming into office in the New Year, along with an even stronger Democratic Congress, we're not going to have such gridlock-generated returns to look forward to.

But fret not: Another interesting conclusion suggested by our own research, and that of Ned Davis and other research firms, is actually quite promising. In stark contrast to what most investors believe to be true -- that Republicans are better for the markets -- the fact is that the blue-chip-dominated Dow tends to rise nearly twice as fast during Democratic presidencies (7.2%) as it does during Republican ones (3.8%).

The great equalizer, if there is one, appears to be inflation, which rapidly eats away the higher returns to bring them within a few basis points of each other over time.

And with the U.S. government having injected roughly $3 trillion in bailout money into the financial markets, an inflationary environment may well be in our future.

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Keith Fitz-Gerald is the Investment Director for Money Morning/The Money Map Report. For more information on Keith, read his bio here.