I read an opinion column in the Christian Science Monitor with considerable interest. In it, Eric Singer advances the opinion that "when Congress is in session, stock prices tend to stall or fall. When Congress is out of session, they tend to soar". An excerpt:
From 1965 through 2008, looking at a total of 11,000 trading days, the annualized daily price gain of the S&P 500 Index is just 0.31 percent when Congress is in session. Out of session, that figure jumps to 16.15 percent, a daily difference of 50 times.
As government power and influence grow, the trend has intensified in recent years. From 2000 through 2008, in-session performance of the S&P is –12.4 percent. The out-of-session performance: +8.8 percent.
In other words, had you invested $10,000 only when Congress was in session from the beginning of 2000 through 2008, putting aside dividends, you'd have $4,615 today. Had you invested that same $10,000 only on days when Congress was on vacation, you'd have $13,416 today.
The reason for this is that the biggest risk in the market is the political risk that Congress will change the rules for many industries – and keep changing or threatening to change them.
Investors face enough risk as it is. They don't like added uncertainty. Political "reform" – or even just the prospect of it – adds a great deal of uncertainty and thus depresses stock prices. Doctors are told: "First, do no harm." Members of Congress seem to follow a different injunction: "First, do something. Worry about consequences later."
There's a lot more at the link. It makes very interesting reading. Recommended.
Peter
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