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

Summary

What common theme is there to these disparate instances of government grinding to a halt? It is that whenever the government is preoccupied with itself, it is better for the market, and therefore for the private economy.

All in all, looking back, President Clinton's impeachment successfully distracted Congress during a period in which the highest and best use of Congress was to have it be distracted. It enabled President Clinton to focus on how to make the economy accelerate even faster, to which he contributed by promoting the housing industry. The unintended consequence of his impeachment was to contribute to an extra year or so of the 1990s' bull market run. This bull market took the average investor experience from simply being a good one in the stock market to being a once-in-a-lifetime run in the stock market.

I believe what the extremely limited data show is that impeachment, in a good economy, can, as counterintuitive as it seems, be good for the stock market, and that in a bad economy, it can be bad for the stock market.

Of much greater concern to me as a practical matter is that litigated elections clearly are bad for the market, and there is a good chance that in the next several election cycles we will see more litigated elections affecting both the presidency and the composition of Congress.

Unlike impeachments or litigated elections or resignations, lame duck sessions and vetoes are a more regular part of the fabric of governing. Lame duck sessions, which ...