It may take weeks to tally the midterm election results. Here's why Wall Street isn't worried.

By Mark Hulbert

It's crucial to distinguish economic from political uncertainty, because only one really moves the stock market

Political gridlock is likely to be the ultimate winner of this week's midterms.

The stock market is unlikely to significantly react one way or the other if, as is likely, we won't know for several days - or weeks - which political party will be in control of the next Congress.

That conclusion emerges from an analysis of what are probably the two most momentous past occasions of electoral-outcome uncertainty. I'm referring, of course, to the presidential elections of 2000 and 2020. In the former case, it took more than a month before it became clear that George W. Bush would be the victor. In the latter case, it took over two months to know that Joe Biden would be the winner.

The accompanying chart plots how the S&P 500 SPX performed during those two periods. There is no clear pattern, as the S&P 500 fell during the first period and rose during the second. And even these moves may not mean much, since the first period's decline occurred during a bear market and the second came during a bull market.

These results may surprise you, given that the stock market typically reacts poorly to economic-policy uncertainty. But they make sense in light of the contrast between economic and political uncertainty. The stock market evidently did not interpret the political uncertainty arising from the ambiguous initial outcomes of the 2000 and 2020 elections as contributing to economic-policy uncertainty.

That actually makes sense, given that congressional gridlock was certain to persist regardless of the outcome of either of those two presidential elections:

-- In the 107th Congress, the one that began in January 2001, the Senate was evenly split, with 50 Democrats and 50 Republicans. In addition, the House also was close to a 50-50 split, with 221 Republicans and 212 Democrats.

-- In the 117th Congress, which began in January 2021, the Democrats held 48 Senate seats, the Republicans held 50, and independents held two. In the House, the split was 222 Democrats and 211 Republicans.

This walk down memory lane is relevant because gridlock is likely to be the ultimate winner of this week's midterms. Even if the Democrats win control of the Senate and the House, they almost certainly will not have a veto-proof majority, meaning that any major shifts in economic policy that the party puts forward will most likely not become law.

The bottom line for investors today? Political uncertainty is not the same as economic uncertainty, and it's the latter that has a major impact on the stock market.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert

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11-02-26 1316ET