Which Party Is Good for the Market? Why Not Flip a Coin?

History isn’t much help if you’re trying to weigh whether a Republican or Democratic Congress would be better for stock and bond markets. Both parties have--and haven’t--been.

From 1919 through 1930, the Republicans had the majority of seats in both the House and the Senate, and they also owned the White House. The 1920s was a period of tremendous economic growth worldwide. In the United States, interest rates were flat or declining for much of that decade, commodity prices fell and stock prices rocketed.

But near the end of that decade rising prosperity fueled a speculative frenzy on Wall Street, which led to the stock market crash of 1929 and set the stage for the Depression of the 1930s. The Democrats were swept into power in the 1932 election, taking control of both the House and Senate, as well as the White House (under Franklin D. Roosevelt).

In 1946, the voters turned on the Democrats and gave the Republicans a majority of seats in the House and Senate. But their two-year reign produced no bonanza for the stock market. The total return on the Standard & Poor’s 500-stock index was just 5.6% in 1947 and 5.4% in 1948.

In 1948, the Democrats returned to power in Congress. With the exception of Republican rule from 1953 to 1955 (on Dwight D. Eisenhower’s coattails), the Democrats had control of both chambers until 1980. So a Democratic Congress presided over most of the stock market’s dramatic advance in the 1950s and 1960s--and also over the market’s stagnation in the 1970s.

In 1980, when Ronald Reagan took the White House, the Republicans also took a majority of seats in the Senate, while the House remained Democrat-controlled. Stocks rallied briskly in 1980 in advance of the Reagan win, then slumped in 1981.

The split Congress, with Reagan, presided over the great 1980s bull market that began in 1982. The Republicans surrendered their Senate majority back to the Democrats in the 1986 election.