Do Stocks Do Better Under Divided Government?
Stocks have not clearly done better under divided government. Five studies reach different answers: from about 4 percentage points a year less to about 2 points more than under single-party control, depending on the years and the definition. The honest summary is that the gap is small and unreliable.
This is educational analysis, not investment advice. Figures are early Wednesday, November 4, 2026 readings and will move.
What do the studies find?
| Study | Period | Divided government | Single-party control |
|---|---|---|---|
| Retirement Researcher and WT Wealth | 1926 to 2023 | 10.18% a year | 14.14% a year |
| Carson Group | 1951 to 2023 | 9.9% a year | 8.0% a year |
| Fidelity | Since 1928 | 8.2% a year | 7.4% a year |
| CFRA | 1945 to 2022 | 7.2% a year | 6.5% a year |
| ICPAS | Not stated | 7.26% a year | 7.45% a year |
Computed from the five studies above. Positive means divided government did better.
Why do the studies disagree?
- Start year: 1926 includes the Depression and the 1930s recovery, which other studies leave out.
- Definition: divided usually means the president and at least one chamber of Congress belong to different parties, but studies draw the line differently.
- Returns: nominal or inflation-adjusted, and price only or with dividends.
- Small samples: there are the number of independent periods is small.
Is today's divided government the same as the past?
Not exactly. After the November 3 vote, a Republican president faces a Democratic House and Senate. Retirement Researcher found the best results when a Democratic president faced a Republican chamber, the reverse of today. Interest rates (the 10-year yield is near 4.9%), inflation and profits differ in every period, so history is a loose guide.
For the news behind the question, read what a Democratic Congress means for stocks.
What matters more than who controls Congress?
Earnings growth, valuation and interest rates explain most stock returns. This site's equity risk premium page compares stock earnings with bond yields, and the Crash Indicator tracks valuation and stress.
Why do the sources use different years?
Each study picks its own start date, from 1926 to 1951, so some include the Depression and war years and others do not. A study that starts in a deep slump will credit whichever party held power during the rebound, even if the cause was something else. That is one reason results differ from "stocks do 4 points worse" to "stocks do 2 points better".
| Design choice | How it changes the answer |
|---|---|
| Start year | Including 1930s and war years adds extreme returns that dominate a short sample |
| Which index | Large-cap and small-cap stocks respond differently |
| Counting method | Annual returns versus returns per presidential term |
| Lag | Whether the result is credited to the party in power on the first day or a year later |
How should you use these studies?
Treat them as a reminder that no political arrangement guarantees returns. The number of independent periods is small, so a difference of two or three points a year could be luck. What the studies do agree on is that the market has risen under every arrangement over long periods.
- Do not time the market on party control. The cost of being out when stocks rise exceeds the benefit of dodging a bad year.
- Do use the question to check your risk. If a policy change would hurt a holding, ask whether you could live with that loss.
- Do watch earnings and rates. They explain more of the long-run return than any political label.
For the policy channels, see how gridlock affects spending, taxes and stocks.
What does a fair comparison need?
A fair test would hold other factors equal, but the economy, Federal Reserve policy and world events differ across periods. That is the core problem with any study of political arrangements: too many things change at once.
| Factor | How it can mislead a study |
|---|---|
| Recessions | A single recession in one regime can dominate its average |
| Interest rates | A fall in rates lifts stocks under whoever is in power |
| Wars and crises | Large shocks hit one arrangement by chance |
| Small sample | Few independent election cycles |
The sensible conclusion is modest: markets have done well under most arrangements, and the political label explains little.
What should you do with this evidence?
- Do not let your portfolio depend on which party holds Congress.
- Use the question to check concentration in political sectors such as energy or defense.
- Keep your focus on what you can measure: price, earnings, cash flow and debt.
What terms should you know?
| Term | Plain meaning |
|---|---|
| Divided government | The presidency and at least one chamber of Congress are held by different parties, or the two chambers are split |
| Unified government | One party holds the White House and both chambers |
| Gridlock | Few major laws pass because each side can block the other |
| Midterm election | The vote halfway through a president's term, for all House seats and a third of the Senate |
| Veto override | Congress passing a bill over a presidential veto, which needs two-thirds of each chamber |
| Excess return | A return above a benchmark such as the whole market |
| Sample size | The number of independent observations; small samples give unreliable averages |
With these terms, the studies reduce to one question: when power is split, does the market earn more or less than the average? The honest answer from the evidence is that the difference is small and unstable.
What should you ask of any claim about politics and markets?
- What is the start year? Studies starting in different decades reach different answers.
- Which index? Large-cap, small-cap and total-market results differ.
- Are returns adjusted for inflation and dividends? A price-only figure understates results.
- How many independent periods? Fewer than about 30 is a weak basis for a rule.
- Who paid for it? A study from a party-linked group deserves extra care.
A claim that fails two or three of these is a headline, not evidence. A claim that passes all of them is still only one input among many, and the market's long-run drivers remain earnings growth, interest rates and valuation.
What is the bottom line on divided government?
The studies do not agree on whether stocks do better or worse when power is split, and the gap between them is small compared with the swings caused by interest rates, recessions and earnings. The market has risen over the long run under every arrangement. So the practical conclusion is to leave party control out of your allocation decisions, and to use a divided Congress as a reminder to check how much your holdings depend on a particular law passing. If a holding does, ask whether its price already assumes the law will pass, and what happens if it does not.
Frequently asked questions
Is divided government good for the stock market?
The evidence is inconclusive. Studies range from divided government returning about 4 points a year less to about 2 points more than single-party control.
What counts as divided government?
Usually the president and at least one chamber of Congress belong to different parties, though studies define it differently.
Why do stock studies on politics disagree?
They use different years, definitions and return measures, and the number of independent periods is small.
Does politics cause stock returns?
No study shows that. Interest rates, inflation and corporate profits explain most returns.