Observations:
● Best combination for stocks: Republican Congress with a Democratic President
● Most positive factor for stocks: A Republican Congress
● Worst combination for stocks: Democratic Congress with a Republican President
● Best record against inflation: Republican Congress
● Least significant factor for stocks: Party of the President
How can I use this information?
Many have seen stories in the press indicating that the stock market prefers a divided Congress or a Democratic
President. As you can see from the above, neither of these are true. Before accepting market wisdom from the media,
we should carefully inspect the information for certain key ingredients. Are percentages and dates presented? If they
are not, such market wisdom may actually be misinformation.

Vote Republican? Did the Democrats cause the poor investment performance or are Democrats more likely to be
elected during times of economic distress? It's the old chicken and egg question.

With a Republican President and a Democratic Congress, expectations for the stock market should be reduced.
SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell signal in the near
future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's stock market timing system was
backtested 100 years with excellent results!

P. S.
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Signals the Trend... in Stocks and Interest Rates                  Backtested 100 Years !
Home
Interest Rate Forecast
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Stock Market Forecast
11/17/06
More
7.1% 10 yrs
17%06 yrs
17% 06 yrs
6.4%  38
14.7%  11
13.5%  09
6.2%  28
11.9% 05
6.4%  036
4.3%  58
4.0%   33
6.5%   19
3.8%  48
5.7%   23
5.8%   12
2.9%  38
1.7%   17
-5.4%  06
2.7%  58
2.0%   37
3.4%   14
2.7%  10
3.0%  08
3.0%  08
2.7%  10
3.0%  08
3.0%  08
2.3%  20
2.3%  20
10.0%08
0  
0  
0  
1900-2005
1950-2005
1975-2005
Summary:
In the table at the right, average returns are
shown for eleven political scenarios during
three time periods containing 106, 56 and 31
years respectively. They are shown in
descending order with the best performer in
the 106 year period at the top.

The best political scenario in each of the
time periods was a Republican Congress
with a Democratic President (row 1).
The ten
years during 1900-2005 that had that political
arrangement averaged a 7.1% return. During
1950-2005 and 1975-2005 the returns were
17% and 17% respectively. The sample size
however, was only 6 and 6 years respectively.
The worst political balance of power during
1900-2005 was a Democratic Congress
with a Republican President (row 10).
The
sample size of 20 years is significant.

Control of the Presidency has been relatively
neutral, giving a scant 1/2% edge to the
Republicans (4.3%-3.8%=.5%). See rows 4 & 5.
Politics vs. the Dow Jones Industrials
Rep. Congress, Dem. Pres.
Republican Congress
Rep. Pres & Congress
Republican President
Democratic President
Dem. Pres & Congress
Democratic Congress
Divided Congress
Rep. Pres, Divided Cong.
Dem. Congress, Rep. Pres
Dem. Pres, Divided Cong.
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
Average annual inflation-adjusted gains and sample size  (dividends excluded).
For example: The left cell on row 1 shows that from 1900 through 2005, there were
10 years when the U.S was governed by a Republican Congress and a Democratic
President. The Dow averaged a 7.1% inflation adjusted gain in those 10 years.
4.8%
4.0%
5.2%
4.7%
4.5%
6.0%
2.0%
3.8%
4.0%
0.9%
2.2%
2.6%
1900-
2005
1950-
2005
1975-
2005
Dem. President
Dem. Congress
Rep. President
Rep. Congress
Politics vs. Inflation
You may have heard that the Democratic party has been better for the
stock market. The stock market has gained 2.4% / year more under
Democratic Presidents since 1901. However, inflation has been 2.8%
greater under Democratic Presidents. In real dollars (inflation-adjusted
dollars) stocks did better under Republican Presidents.

For example: If you make 15% in stocks, that's great. But but if inflation
was 10%, the money you made won't buy as much. You actually gained
5% in real dollars (adjusted for inflation).   From 1900-2005,  inflation
was 3.8% lower during Republican Congresses (
4.7% - .9% = 3.8%).
That difference of 3.8% fully accounts for the
3.7% advantage that
Republican Congresses have enjoyed over Democratic ones (rows 2&7).
Control of the Congress has been most significant.  The Dow gained an average of 3.7% more during a
Republican controlled Congress (6.4%-2.7%=3.7%).
The sample size is very large with 38 years under the
Republicans and  58 years with a Democratic Congress. See rows 2 and 7.
Long term bonds have suffered more under Democratic regimes since rising inflation puts upward pressure on
interest rates and therefore downward pressure on bond values. To review the effect that rising interest rates have on
bond values, click on the How to Invest button on the top navigation bar at the top of this page. Inflation with a
Republican President and a Democratic Congress averaged a moderate 2.3% during 1900-2005.
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