History Says Divided Government Good For Stock Market, With 1 Exception. Prediction Markets Now Say There’s A 92% Chance Of Dems Taking The House
Wall Street has long claimed gridlock in Washington is good for stocks, and the historical data mostly agrees. But one government configuration breaks that rule entirely, and prediction markets now put its odds at 92%.
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Gridlock in Washington is good for stocks, according to a popular Wall Street rule of thumb. The idea returned this month when MarketWatch examined on September 23 whether historical market data supports it. The long-run numbers mostly do, with one clear exception. Prediction markets now say there’s a 92% chance that exception occurs.
Most Government Mixes Have Coincided With Double-Digit Averages
Per RBC Wealth Management, whose chart credits RBC Capital Markets U.S. Equity Strategy and Haver Analytics, here are average annual S&P 500 returns since 1932, sorted by which party controlled the White House and Congress. These are price returns only and exclude dividends, so they will look lower than performance figures that include reinvested dividends.
| White House / Congress | Average Annual Price Return |
|---|---|
| Republican sweep | 13% |
| Democratic sweep | 10% |
| Democratic president, split Congress | 13% to 14% (varies by report vintage) |
| Democratic president, Republican Congress | 13% |
| Republican president, split Congress | 5% |
| Republican president, Democratic Congress | 5% |
One Exception Breaks the Gridlock Story
The same RBC data shows a Republican president matched with a split Congress returned 5%, and a Republican president matched with a Democratic Congress also returned 5%. The divided-government pattern holds when a Democrat occupies the White House. When a Republican president loses unified control, the dataset shows its lowest readings.
Why That Configuration Is on the Table in 2026
The sitting president, Donald Trump, is a Republican. A change in control of either chamber would place Washington in one of the two configurations RBC’s data flags as the laggard.
What Prediction Markets Are Pricing Right Now
On these platforms, a contract price reads as the market’s implied probability of an outcome. On Polymarket’s House control market, Democrats carried a 92% implied probability of taking the House as of 10:17 a.m. ET on September 28, 2026. That figure had moved within the hour before publication, since these markets reprice continuously.
The Senate is the closer chamber. On Polymarket’s Senate control market, as of 14:12 UTC on September 28, 2026, the Democratic contract stood at 0.625 and the Republican contract at 0.375. The Democratic contract is up 0.12 over the past month and up 0.35 over the past year. The Senate event carries $5,333,517 in total volume, which gives readers a sense of the money behind the price.
A Separate Market on the Popular Vote
Polymarket also runs a market on the House popular vote margin of victory. This market prices the national vote margin, and seat control is a separate question decided district by district. As of September 28, 2026, the largest single bracket is Democrats winning the popular vote by 8% to 10%, priced at 0.285. The Democrats 10% to 12% bracket sits at 0.215, and the Democrats 6% to 8% bracket at 0.18. These prices offer color on the direction of view and carry no control forecast.
Three Caveats Every Reader Should Weigh
- Sample size. Since 1932, only a small number of Congresses fall into each of these six configurations. Each average rests on very few two-year periods, which makes it thin. Anyone weighing 5% against 13% should keep that in mind.
- Loose categories. Per our editor’s brief citing RBC, the 2000 election produced a 50/50 Senate tie broken by the Republican vice president. A party switch by one Republican senator in mid-2001 then flipped control to the Democrats partway through the term. A single label cannot capture that.
- Correlation only. Nothing in this data establishes that government configuration drives returns. This article describes a historical pattern alongside a current probability and makes no forecast of future market returns.
Where This Analysis Stops
The historical averages are what they are, and the market’s current expectation is what it is. The overlap between them is interesting and carries no predictive weight. A pattern drawn from a handful of observations works as a starting point for thinking about the midterms, and as a prompt for further research into how markets have performed across past transitions in Washington.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
