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5 Charts on the Democratic Blue Wave

January 15, 2021

One of the top questions we’ve received recently has been what a blue wave may mean for investments. After the Democrats won the two Senate runoff elections in Georgia, they will now control the White House and both chambers of Congress. Our January 11 Market Policy Projections for 2021 gave some of the immediate and longer-term policy impacts of the Democratic “blue wave,” and here we surf the blue wave with some interesting charts.

First off, blue waves have not been bearish for stocks, with the S&P 500 Index higher 6 of the past 7 times and up a respectable 9.1% on average since 1950.

View enlarged chart.

We shared this chart in 2020, and it shows that historically, stocks do better if an incumbent president wins versus a new president in office. This makes sense, as a new president will bring in new policies and likely question marks—while you know what you will get with a re-elected president. Remember, markets hate uncertainty and surprises.

View enlarged chart.

“Make it all nine new Democratic presidents since 1900 to bring with them both the House and the Senate. In fact, stocks do quite well that first year under such circumstances, up nearly 12% on average,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Maybe investors shouldn’t fear a blue wave after all.”

As shown in the LPL Chart of the Day, when a new Democratic president has brought with them the House and Senate, stocks gained that first year of their new presidency 6 of 8 times. What stands out to us for 2021, though, is the House majority is only 11—the smallest for a new Democratic president since 1900.

View enlarged chart.

Looking at all of the times the Democrats controlled the House (since the 35th Congress when it was Democrats and Republicans), the 11-seat majority is the lowest since 9 seats in 1879. Yes, the Democrats are in power, but this small majority will make it very tough for any of the more extreme policies to pass.

View enlarged chart.

Lastly, the Senate is split a perfect 50/50, which is again extremely rare. In the chart below we share the seat difference between the two parties. “A 50/50 Senate coupled with only an 11-seat majority in the House, and it is safe to say we have about as close to a perfectly divided government as we’ve ever seen,” said Detrick.

View enlarged chart.

In our latest LPL Street View video Ryan discusses some surprises to kick off 2021, like the blue wave and continued strong equity performance.

 

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.

All index and market data from FactSet and MarketWatch.

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.

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