So did you vote today? I did and I have to admit I love this time of year. Part of it is because I am a political junkie, part of it is because I love the drama of American politics. A lot of the speculation amongst the pundits is who will win what race, in what state and in what capacity. So what does it mean for financial markets if Republicans win the Senate and we have divided government in the United States? In my opinion, absolutely nothing. You might get some initial reaction from the immediate markets. It might go up or down quite a bit for the next week, but if we look out to the rest of the year I don’t think it will make much of a difference. Primarily, because divided government brings gridlock. It doesn’t bring a lot of change. According to most pundits, businesses and markets like stability. Gridlock brings stability because you know there will not be a lot of political change within the United States over the near-term. So don’t expect much change in the markets over the near-term. In fact, this gridlock environment may actually create a great atmosphere to invest because of the stability of deadlocked government. That doesn’t mean we don’t have problems and there won’t be issues, but in terms of economics I think we will just plod along and that will translate into the stock market.
Does this election demonstrate a large sea change in American politics for 2016? In my opinion, again, the answer is no. We have supposedly viewed this huge sea change for the past 10 years. In 2004, Karl Rove predicted a Republican ascendancy that would last a generation. Two years later, Republicans got spanked in the 2006 and 2008 elections. In 2008, Democrats predicted the same thing. In 2010, Democrats got spanked by Republicans. There is a sea change in terms of demographics, but American politics is a pendulum. When it swings one way you can almost guarantee that realignment will occur and that pendulum will swing the other way within a few years.
I love American politics!!