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Why A Potential Democrat Sweep May Not Be A Market Worry

Why A Potential Democrat Sweep May Not Be A Market Worry

July 15, 2020
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Based on the latest polling data, there’s growing consensus that former Vice President Joe Biden potentially may win the election and Democrats possibly may sweep Congress. Some might think this could be a negative for stocks, as a higher corporate tax rate that reduces earnings could be part of the Democratic platform.

Early writers of the US Constitution were worried about one party having too much power that could enable factions in Washington, DC, to enact more extreme policies and political ideals, upsetting the carefully balanced apple cart. As LPL Research noted in its recently released Midyear Outlook 2020, stocks historically have performed quite well when Congress has been split, although stocks actually have done better than most probably realized when the Democrats were in full control.

“Higher corporate taxes are quite likely should we see a potential Democratic sweep,” said LPL Financial Chief Market Strategist Ryan Detrick. “But to blindly say stocks will do poorly is quite a stretch, as historically stocks have done rather well under this .”

As shown in the LPL Chart of the Day, the S&P 500 Index has been higher 9 of the past 10 times and 15 of the past 18 times Democrats controlled both the White House and Congress. Although LPL Research anticipates a likely split Congress in November, with the list of overall worries growing, we don’t think a potential Democratic sweep should be at the top of investors’ list of worries.

View enlarged chart.

 

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