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| Author: | Amity Shlaes, Senior Fellow for Economic History |
|---|
October 23, 2008
Bloomberg.com
Obama, OK. Obama-Pelosi-Reid? A nightmare for markets. McCain-Pelosi-Reid? OK. McCain and Republican majorities in both House and Senate? Another nightmare.
That at least is the analysis of Eric Singer of Congressional Effect Fund, a new mutual fund. As noted in an earlier column, Singer got into the index business after he found that the Standard & Poor's 500 Index performs two or three times better when Congress is out of session than when at least one of the two chambers is at work.
That difference, Singer discovered, wasn't because of political party-a laboring Republican Congress was also problematic. The poor performance, rather, reflects market anxiety that the House and Senate generate when they pass a new regulation or revise laws already on the books. Simple congressional workday chatter about possible changes is also negative, according to the Singer data.
"Even talk is not cheap,"he says.
This past August, with Congress safely on holiday, markets were still weird. That set Singer to wondering anew.
He noted that there were years, such as 1998, in the middle of Congress's Republican reassertion, when markets did great even when lawmakers were at their posts.
Combing his data back to 1965, Singer found a second trend. A split Washington, in which at least one of the two chambers is led by a party other than the president's, points to a better total return for the S&P 500 than a unified Washington in which the presidency, House and Senate are controlled by one party.
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