Tags: Congress | market | stock | law

Data from 1930s Show GOP Senate Win Could Trigger Stock Market Rally

By    |   Wednesday, 29 Oct 2014 08:35 AM

The stock market does best when Washington does the least. This has been proven by studies that show the Dow Jones Industrial Average has delivered almost all of its historical gains, more than 90 percent, when Congress is not in session.

One example of the harm Congress can do is found in the aftermath of the 1929 Crash. As the market struggled to recover, Congress passed the Smoot-Hawley Tariff in June 1930, which raised tariffs on foreign imports, and stocks went into a virtual freefall for the next two years.

dow-with-smoot-hawley.jpg
Congress rarely passes laws like Smoot-Hawley that result in the immediate destruction of wealth, but many acts do have long-term negative impacts on stocks. Sarbanes-Oxley, a law passed in response to Enron's bankruptcy, for example, has increased the cost of public offerings and prevented smaller companies from being listed on stock exchanges. Without access to capital from the stock market, many small companies remain small and never realize their full potential.

When Congress acts, their intentions are good. Unfortunately, laws are often so complex their consequences cannot be known for several years. Invariably, there will be unintended consequences.

Because no one knows what a law will do until long after it is enacted, investors seem to prefer an environment where Congress is not doing anything. A lack of Congressional action has historically provided a climate of economic certainty and positive investment returns.

Republican control of the Senate could ensure two years of gridlock in Washington. On Wall Street, the inability of Congress and the president to agree on anything could provide the basis of a bull market.

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MichaelCarr
The stock market does best when Washington does the least. This has been proven by studies that show the Dow Jones Industrial Average has delivered almost all of its historical gains, more than 90 percent, when Congress is not in session.
Congress, market, stock, law
267
2014-35-29
Wednesday, 29 Oct 2014 08:35 AM
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