We often discuss the Presidential Election Cyclersquo;s effect on markets but what about other main branches of government? The research group ISI dusted off an academic study on Congressrsquo; effect on stock markets from a few years ago.
Ferguson and Witte published ldquo;Congress and the Stock Marketrdquo; back in March of 2006. They found that the market performs better when Congress is adjourned.

How the Market Performs When Congress is In and Out of Session

Note: Data for the Dow begins in 1879 and data for the Samp;P 500 begins in 1957

Annualized Returns
In Session
Out of Session

In Session
0.38%
1.87%

Out of Session
5.30%
5.17%

When comparing the difference between in session returns and out of session returns, the Dow Jones Industrial Average is almost 5 percent higher out of session, and the Samp;P 500 is 3.3 percent higher during out of session periods. Even more surprising is that 93 percent of gains for the Dow since 1879 have occurred during out of session days.
The researchers also found that public opinion of Congress strongly affected market returns. For every 10 percent increase in disapproval, the market jumped 2.4 percent when Congress adjourned.
Back then, the disapproval rate was at 31 percent and now thatrsquo;s more than doubled. The most recent NBC/Wall Street Journal poll says 63 percent of Americans disapprove of the job Congress is doing.
Since Congress adjourned on August 1, the Dow has jumped 2.27 percent and the Samp;P 500 is up 1.98 percent.
This covers less than 10 trading days so the data set is small, but it illustrates the infinite number of factors that can drive the market. In this environment, public opinion and consumer sentiment can be just as significant as a companyrsquo;s financial statement.
People need to believe a recovery is happening in order for one to occur.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Samp;P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. 09-560

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