The last time Larry Kudlow was in the White House, his boss Ronald Reagan governed with a House led by a Democrat and the Senate by a Republican.
Looks like that will happen again with Kudlow’s new boss, Donald Trump, with polls indicating enough support for Democrats to retake control of the House of Representatives but fall short in the U.S. Senate.
The RealClearPolitics average of polls is consistent with Democrats picking up 25.5 seats — more than the 23 needed to flip the House — and the Republicans extending control of the Senate by another seat.
The one difference between the era when Reagan was president, Republican Howard Baker was Senate majority leader and Democrat Tip O’Neill was the speaker of the House, was that party control didn’t actually shift at the midterms.
Data compiled by Dow Jones Market Data showed that the stock market liked the result, when Democrats extended their majority from 242 seats to 269 seats, as the S&P 500 SPX, +0.32% rallied 3.9% the next day.
Six months later those gains were 17.9%, and the S&P 500 advance one year later was 19.9%.
A particularly blue wave could see Trump govern with Democrats in control of both the House and the Senate. That would be like 2006, when George W. Bush governed with Nancy Pelosi and Harry Reid. Stocks were basically flat the next day — a 0.2% gain for the S&P 500 — but up 9% six months later and 6.7% one year later.
There’s also a not unreasonable scenario where Republicans retain control of both the House and the Senate. That would be reminiscent of 2002, when Bush governed with Bill Frist leading the Senate and now-disgraced Dennis Hastert running the House.
The S&P 500 rose 0.9% the day after the election, rose 1.2% six months later and 14.9% one year later.
