For much of 2024, Americans from across the great country have focused on Election Day. While not every aspect of the legislative process affects Wall Street, elected officials and the party ultimately in charge help shape the fiscal policies that impact the U.S. economy and the companies that keep it afloat.
While most of the focus has been on which candidate will win the race for the Oval Office, as of this writing on November 6 at 2:05 a.m. ET, former President Donald Trump has a better than 95% chance of victory. According to the Associated Press (AP), the composition of Congress often proves to be much more important. This is because votes in the House of Representatives and the Senate are required to pass bills.
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In the early morning hours, AP made the call that Republicans would control the Senate starting Jan. 3, 2025 — and that’s generally good news for Wall Street, based on what history tells us.
While the final results could be hours or days away, we now know that Republicans have at least 51 seats in the 100-seat Senate, with seven races still to be held. This is the first time in four years that the Republican Party will control the House of Representatives.
At this point, it’s too early to speculate what a Senate victory might mean for Republicans in terms of fiscal policy. If the Republican Party wins the House and the presidency, a unified government could make it easier to pass certain legislation. But if Congress becomes divided and Democrats gain control of the House of Representatives, we could face further political gridlock.
Perhaps the closest thing to certainty for Wall Street and corporations is that corporate tax rates are unlikely to rise anytime soon from a historically low 21%. Kamala Harris, the Democratic Party’s presidential candidate, had campaigned on the idea of raising the corporate tax rate by 33%, from 21% to 28%, to raise additional revenue and reduce the federal deficit. A Republican-controlled Senate is effectively taking corporate tax increases off the table.
A historically low corporate tax rate has played a key role in enticing Wall Street’s largest firms to make substantial stock buybacks. The companies that make up the S&P500 (SNPINDEX: ^GSPC) spent nearly $236 billion on share buybacks in the quarter ended June, adding more than $7 trillion in buybacks over the past decade, according to S&P Global.
For companies with stable or growing net income, buybacks can increase earnings per share (EPS). Tech giant Apple (NASDAQ: AAPL) has put more than $700 billion to work through share buybacks since 2013 and has significantly improved its earnings per share, with Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG)the parent company of search engine Google, which has spent more than $271 billion on buybacks over the past decade, ended June 30, 2024.
Without worries about higher taxes in the near future, look for companies that can use the Republican Party’s retake of control of the Senate as a catalyst to increase buybacks.
Beyond speculation about fiscal policy, investors are likely most interested in what to expect from stocks with Republicans in control of the Senate. Based on 75 years of historical data analyzed by the president of Integrity Wealth Management and Forbes contributor Mike Patton, there’s plenty of reason for investors to smile.
According to Patton’s findings, Republican control of the Senate between 1946 and 2020 resulted in an average annual return for the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) of 11.3%. For comparison, the average annual return for the Dow Jones, when Democrats have a majority in the Senate, was ‘only’ 6.3% over this 75-year period.
But – and this is one quite big “however” – there is more to this data than meets the eye. No matter how you put the pieces together, with respect to party control in the House of Representatives, the Senate or the White House, the average annual return of the Dow Jones Industrial Average from 1946 through 2020 has been decisively positive.
Patience, not politics, is the deciding factor that continually rewards the investing community.
For example, in June 2023, researchers at Bespoke Investment Group released the above data on X, the social media platform formerly known as Twitter, which examined the length of each calendar day of each bear and bull market in the S&P 500. until the start of the Great Depression in September 1929. What Bespoke found was that the average bear market in the S&P 500 lasted only 286 calendar days, or about 9.5 months.
At the other end of the spectrum, the typical bull market in the S&P 500 has lasted about 3.5 times as long, or 1,011 calendar days. Furthermore, 14 of the 27 bull markets, including the current bull market, have lasted longer than the longest bear market.
When America’s most influential companies are simply given time to perform, they deliver results regardless of which political party is in charge.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Alphabet. The Motley Fool holds positions in and recommends Alphabet, Apple and S&P Global. The Motley Fool has a disclosure policy.
Republicans Regain Senate Majority: Here’s What History Says Happens to Stocks When the Republican Party Controls the Upper House of Congress, originally published by The Motley Fool
