Congress and the Stock Market

[HenryTo]

Very interesting statistic - this is from Yahoo Finance's latest poll:

A recent research paper by Michael Ferguson of the University of Cincinnati and Hugh Witte of The University of Missouri titled "Congress and the Stock Market" found that an astonishing 90% of all the gains in the Dow Jones Industrial Average occurred while Congress was not in session.

What could possibly explain the correlation between Congressional sessions and market performance? According to Witte and Ferguson, it is possible that markets head south when Congress is in session because of the rule making power of the legislature. When Congress is in session, "Information about potential changes in the tax and regulatory environment is generated during committee meetings, floor speeches, etc. In a competitive equity market this information will impact stock prices as it is learned." The researchers also point to a quote from Will Rogers to eloquently communicate the impact Congress can have on investors, "This country has come to feel the same when Congress is in session as we do when a baby gets a hold of a hammer. It's just a question of how much damage he can do with it before we take it away from him."

Should the average investor liquidate his portfolio every time he sees Dennis Hastert or Tom Delay on CSPAN? Not necessarily, although Dow Jones gains during Congressional sessions have been rare, they typically occurred when Congress had a high approval rating. According to a recent poll by The Gallup Organization, only 35% of the U.S. currently approves of the way Congress is handling its job.

[pete richardson]

Mark Twain covered this pretty well long ago.