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.
IMPORTANT DISCLOSURES This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. This Research material was prepared by LPL Financial, LLC. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity. Not Insured by FDIC/NCUA or Any Other Government Agency, Not Bank/Credit Union Guaranteed, Not Bank/Credit Union Deposits or Obligations, May Lose Value. For Public Use – Tracking 1-05033139