Keith Fitz-Gerald

Which Party Is Actually Better For the Markets?

by Keith Fitz-Gerald   11/18/08

With the whipsaw trading we've seen of late, it appears that the U.S. financial markets are already chewing through the post-election honeymoon.

I have to say that I, for one, am relieved that's the case because it signals that the markets are already returning to normal.

I realize it may not feel that way, but there's one very important thing to remember: We nearly always seem to receive the best news near, or at, market tops, and the worst news near, or at, market bottoms.

Although that seems contradictory, it actually makes sense. And investors can take some solace in the fact that the mounting tide of bad news is an important part of the bottoming process.

Speaking of which, studies show that the most dangerous time for American markets (and U.S.-centric investors) is when one political party controls all the marbles. It doesn't matter which one, either -- Republican or Democrat.

The reason is clear: Single-party control typically brings out the very worst in big government in the form of higher taxes, magnified spending and even war.

As my friend, economist Mark Skousen, recently noted, "Every one of the major wars involving America occurred during one-party rule: World War I, World War II, Korea, Vietnam and Iraq."

According to studies conducted by researchers at Ned Davis Research, the best thing financially would be to have a divided government and gridlock. In short, the Dow Jones Industrial Average Index (DJI) logs its biggest net gains with a donkey in the White House and elephants traversing the halls of the U.S. Capitol.