By: Andrew J. Willms
President and CEO of The Milwaukee Company
Traffic jams really grind my nerves. I suppose that’s to be expected, given my type A personality. I find it very difficult to simply sit in a car and to not be able to go anywhere or accomplish much of anything.
Wall Street, on the other hand, seems to welcome gridlock. The stock market has been on a post-election tear, as election results appear to point to a Biden presidency and a continued Republican control of the Senate. It seems investors are quite happy that the pollsters were (once again) dead wrong in their predictions of a blue wave giving the Democrats control of all three elective branches of the federal government.
The reason the markets have rallied on the prospects of divided government are easy to grasp. Democratic control of the House, Senate, and Presidency would have most likely led to legislation enacting higher corporate taxes, greater government regulation and pro-labor policies, and increased efforts to break up the mega-cap tech giants that have been pushing the stock market to record highs.
Whether these efforts would benefit the country as a whole is debatable. But the impact their enactment would have on the stock market, at least in the near term, seems clear. The Democratic party’s platform would in all likelihood lower future corporate earnings (projected corporate earnings drive stock prices).
Given the foregoing, many are suggesting that a Washington gridlock is a good thing for investors. In the short run, that’s probably true. From a long-term perspective, I am not so sure. After all, there are real problems that are facing this country that need to be solved for our nation to remain prosperous, and to retain its position as the world leader. It’s hard for me to see how that will happen while a bitter, and often outright hostile, partisan divide prevents our legislative process from functioning.
The optimist in me would like to think that the need for constructive legislation is so great that somehow our Democratic and Republican representatives will find a way to work together. The realist in me, however, doubts that will happen.
Then again, one aspect of this election that does provide me with cause for hope is how amazingly close it was, and how tenuous each party’s current position is. That could lead to the formation of a coalition of moderate members of both parties who are more concerned about getting things done than making the other side of the isle look bad. And, the fact each party’s representation in the House and Senate is so close means even a small coalition could carry us forward.
And perhaps the closeness of many legislative elections will cause even the more partisan members of both parties to realize that pandering to the most extreme elements of their party could lead to their political downfall. The fact that the parties just about split the vote between them suggests that trying to get elected with no votes from the other side could prove to be a recipe for defeat.
No, I don’t think gridlock is a good thing. But a very tight election could be a very good thing indeed. Let’s hope so.
This Week’s Market Commentator’s Podcast:
Gridlock is Welcome on Wall Street. View Podcast Here
People Fear a Market Crash More Than They Have in Years. Read More Here
The Importance of Separating Your Politics From Your Portfolio. Read More Here
The degree of difficulty for market timing is even higher than most people assume. Read More Here
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