Investing.com — In a report published on Friday, Barclays (LON:) Strategists delved into the historical impact of unified Republican control of the US government on stock markets.
According to the firm's analysis, there have been only four cases since 1949 in which the Republican Party held the presidency and the majority in both the House and Senate. Despite the small sample size, these periods have reportedly been more favorable for stocks compared to times when the White House was Republican but Congress was divided.
“We found that there is limited data to consider, with only nine unique election results in the United States since 1949,” Barclays notes. “Of them, 4 resulted in a unified republican government.”
Barclays noted that during cases of unified GOP control, median returns were approximately 750 basis points higher than when the GOP controlled only the White House, with a divided Congress.
Sectors that posted particularly strong performance included cyclical sectors such as financials and technology, as well as sectors linked to raw materials.
In addition to the performance of the sector, the study also examined the behavior of different market factors. Small-cap, high-volatility strategies were found to perform well under a unified Republican government. On the other hand, strategies based on momentum and profitability factors showed lower average returns in comparison.
Donald Trump's Republican Party is expected to retain control of both the House and Senate when he takes office in January, according to Edison Research on Wednesday.
This Republican majority, often called the “red sweep,” is expected to give the Trump administration greater freedom to implement its economic agenda.
Key priorities such as tax cuts and tariffs could boost economic growth but also raise concerns about inflation and the growing U.S. budget deficit.
The anticipation of these policies has contributed to gains in certain areas of the stock market, strengthened the dollar and pressured Treasuries as investors adjusted their portfolios in favor of stronger growth, looser regulations and possible inflationary pressures that could limit the Federal Reserve's ability to significantly cut rates next year.
Although some of these market trends have slowed recently, investors remain focused on assessing the long-term impact of Trump's policies on markets and the economy, particularly in a scenario where Republicans control both houses of Congress.
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