Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Filibuster-Proof Majorities Hurt Returns

What can we learn from what happens when the government is really big and there's no power to even launch a filibuster? Highly unified government is usually horrible for the stock market. There have been four times since the Great Depression when the president has had a completely filibuster-proof majority in Congress:

1935 through 1942

1963 through 1966

1977 through 1978

2009 through 2010 (portions)

In gross price returns, excluding dividends, the stock market compounded at an average rate of 1.9 percent during these nearly 15 unfilibusterable years, as compared to an overall average of 6.2 percent since 1933. Without a filibuster threat, Congress is more likely to get drunk on power and redistribute the hangover to us.

Since the period where U.S. citizens were allowed to own gold again, there have been two periods where the president had a nearly filibuster-proof majority to work with, as well as controlled both houses: 1977 through 1978 and 2009 through 2010. In 1977, the S&P 500 Index total return was −7.18 percent, and in 1978 it was −6.56 percent. However, gold jumped 22.6 percent in 1977, and it jumped another 37.0 percent in 1978. Taking just these two years of filibuster-proof majority and looking at their impact on the real wealth of the country, the stock market was essentially neutral and our international purchasing power was cut in half in those two years because of the nearly 60 percent increase in the price of gold ...