Is Gridlock In Washington Bullish for Stocks?

It is widely believed that political gridlock is bullish for stocks in the US. The market is happiest when our constitutional system of checks and balances is working. Therefore, a divided government is preferable to a unified government when one party controls the White House and both houses of Congress. So a widely expected "red wave" tomorrow should be bullish for stocks.

We have previously observed that the stock market has a strong tendency to perform well following midterm elections irrespective of the actual election outcome. However, there are too many factors that influence the stock market to show conclusively that the market performs better under divided than unified governments.