Mon, Oct 26, 2026|Sean Michael Cummings

What a Divided Government Really Means for Stocks

Democrats are on pace to win their first Texas Senate seat in 38 years...

Texans who have never voted before are going to the ballot box in droves. According to the Houston Chronicle, blue counties in the state are turning up to vote in record numbers for this midterm election. For example, Dallas saw a nearly 30% jump from its previous record set in 2018.

A ton of new turnout is probably bad for the incumbents.

Betting markets are starting to favor the Democrats, too. At the time of writing, PredictIt, Kalshi, and Polymarket all put the odds of Democrats flipping the Senate at 68%.

Obviously, no one has a crystal ball. Midterm elections around the country are still closely contested...

Still, folks are starting to predict that we'll see more division on Capitol Hill. It's possible that the next two years will be marked by gridlock... with a Democratic House and Senate resisting the president's agenda.

You may have heard investors say that gridlock in Washington is good for the market. It's an old stock market cliché.

I decided to put this wisdom to the test...

Gridlock Isn't the Market Booster You May Think

At first, it makes sense that a divided government might be good for markets...

A unified government has the power to legislate pro- or anti-business policies. Investors would rather hold on to the status quo than risk anti-business decisions. That's why folks say it's bearish when Washington is unified.

I wanted to know exactly how much the division actually matters, though. So I measured stock returns during periods of unified and divided government going back to 1950.

The story wasn't as simple as you'd expect. Here's what the data shows...

Since 1950, the government has been divided about 60% of the time. But that setup has actually led to slightly weaker returns...

A divided government produced a 7.4% annualized return on average. But a unified government has been better for stocks... leading to an average annualized return of 9.6%.

That means a unified government leads to outperformance of about 2 percentage points. And divided governments also underperform a buy-and-hold strategy by about 1 percentage point.

So can stocks rise through a divided government? Absolutely. But the old saying that gridlock is good for the market is a bit overstated.

Still, history shows the market can rise through both harmony and division in government. Both cases led to gains. So we shouldn't expect a regime shift in Congress to end today's bull market.

In short, the midterm election shouldn't cause a big inflection point for stocks. Don't go changing your portfolio based on the ballot.

Good investing,

Sean Michael Cummings

What a Divided Government Really Means for Stocks

Gridlock Isn't the Market Booster You May Think

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