Study Says Markets Historically Perform Better When Congress, President Are Same Party, Contrary to Conventional Wisdom

Business Wire, Nov 5, 2004

CHARLOTTESVILLE, Va. -- Conventional wisdom often assumes that U.S. equity markets benefit from political gridlock - when the party in control of the Presidency differs from the party in control of Congress. But the evidence does not support the belief that the market performs better under political gridlock than under political harmony, according to Robert R. Johnson, Ph.D., CFA, executive vice president at CFA Institute.

A recent publication entitled, "Don't Worry About the Election: Just Watch the Fed," in the Journal of Portfolio Management, by Johnson and his co-authors, Scott Beyer and Gerald Jensen of Northern Illinois University, found that the equity markets, particularly small stocks, performed better under political harmony.

"Market pundits often state that gridlock is good for the market," Johnson said. "From 1926 through 2000, the S&P 500 returned approximately 13.6% annually during gridlock and 12.8% during political harmony, a statistically insignificant difference. However, small stocks returned 11.4% under gridlock and a whopping 23.5% under political harmony. The fact that gridlock is viewed by some as positive for the market is a particularly cynical view of the impact of governmental fiscal policy on returns. It appears that, at best, gridlock is neutral for large stocks and a negative for returns to small stocks."

To read an executive summary visit www.cfainstitute.org/pressroom/pdf/ElectionEffectOnMarket.pdf.> About CFA Institute

CFA Institute is the global, non-profit professional association that administers the Chartered Financial Analyst(R) curriculum and examination program worldwide and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has almost 75,000 members in 120 countries. Its membership includes the world's 63,000 CFA charterholders, as well as 130 affiliated professional societies and chapters in 51 countries and territories. CFA Institute is headquartered in Charlottesville, Va., USA, with additional offices in London and Hong Kong. CFA Institute was known as AIMR (Association for Investment Management and Research) from 1990 to early 2004, and before that was two separate organizations whose roots go back to 1947. More information may be found at www.cfainstitute.org or by calling 1-800-247-8132 or 1-434-951-5499 in the U.S., 44-207-712-1719 in London or 852-2868-2700 in Hong Kong.