This is dumb and not historically supported

Not everyone on Wall Street believes political gridlock will be a positive for the U.S. stock market.

Stocks rallied ahead of the midterm elections on hopes for a change in political leadership. Tuesday's elections allowed those hopes to become reality as Republicans took control of the House of Representatives, creating the sort of gridlock investors have longed for.

Gridlock is widely assumed to be good for stocks because a divided government is less likely to pass new legislation or regulations, which is viewed positively for businesses and, therefore, stock prices. Historical data, however, suggest gridlock may not be as great as it appears.

Sam Stovall, chief investment strategist at Standard & Poor's Equity Research, said research dating to 1900 shows stocks have actually performed worse in the two years following midterm elections when gridlock ensued as opposed to an environment under a unified government.

Mr. Stovall compared three different political scenarios following midterm elections: total unity with one party in control of the White House and Congress; partial gridlock with a unified Congress and a different party in the White House; and total gridlock with a split Congress.

"From a very simplistic perspective, the resulting equity market strength in this scenario appears logical," Mr. Stovall said in a recent note. "Under a unified-party government, if the president proposes legislation, it will likely be rubber-stamped by Congress, thereby stimulating the economy, increasing output, and raising corporate earnings and propelling shares higher."

The Standard & Poor's 500 has averaged a 7.6% gain in the 67 years since 1900 under total unity. By comparison, the index has averaged a 6.8% return in the 32 years under partial gridlock. And under a total gridlock scenario, like the current situation, the S&P 500 has averaged only a 2% gain.

Under total unity and partial gridlock, the S&P 500 has performed better under a Democratic administration when compared to Republican leadership since 1900. But in a total gridlock scenario, the market has performed better under a Republican president than a Democrat.

To be sure, Mr. Stovall notes there is a small sample size to draw conclusions from the total-gridlock scenario. There have been only 12 years since 1900 under total gridlock, so the data may be skewed.

But he remains confident that the popular notion regarding gridlock needs to be reconsidered.

"I believe investors look to Washington for leadership, not obstacles," Mr. Stovall said. "The resulting uncertainty may just end up adding one more stone to this already high wall of worry, limiting the otherwise strong performance that is typically seen in a president's third year in office."