OUTLOOK 2023 Democratic president with a Republican or split Congress has been a strong combination for stocks AVERAGE S&P 500 INDEX ANNUAL RETURN (1951–2022) 20% DEMOCRATIC PRESIDENT REPUBLICAN PRESIDENT fig. 14 15% 10% Going back to 1951, a Democratic 5% president with a Republican or split Congress has seen an average total return for the S&P 500 Index of 17.5% 0% versus an overall average of 12.5% DEMOCRATIC REPUBLICAN SPLIT REPUBLICAN DEMOCRATIC SPLIT (excluding 2022). CONGRESSIONAL MAKEUP Perhaps the biggest policy takeaway Source: LPL Research, FactSet 11/15/22 All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. The modern design of from the election results is simply that the S&P 500 Index was first launched in 1957. Performance before then incorporates the performance of its predecessor index, the S&P 90. it will be harder to pass any legislation if we have a mixed government, which likely takes any meaningful risk of tax some areas of the healthcare sector, approval, possibly maintaining increases on households or businesses especially hospitals. However, we regulatory risk in areas where off the table. We would consider this would highlight that historically the instruments of the executive market positive, especially on the economic backdrop has typically branch have oversight. However, corporate side. dominated the policy environment a narrow Senate majority has when it comes to the policy impact on given centrist Democrat senators POLICY SUPPORT FOR sector performance. (primarily Joe Manchin, WV, ENERGY, FINANCIALS, Other potential takeaways: and Kyrsten Sinema, AZ) strong AND HEALTHCARE § The path to raising the debt ceiling influence, as their votes are needed There is also typically incremental may become more difficult, and for any appointment that does not improvement to the policy markets have usually reacted have bipartisan support. environment for financials, energy, negatively when it starts to look and defense when Republicans like there’s some possibility the Finally, we are often asked what hold more power. Financials are U.S. could default on its debt. the 2022 election might mean for unlikely to see legislated increases § A recession has the potential to 2024, especially the presidential in regulatory oversight and would be somewhat deeper, if we were to contest. But it’s difficult to forecast no longer face the risk of a new have one, due to a smaller fiscal the political environment two years financial transactions tax with a response. ahead, never mind the market Republican House. Energy is more § A Republican House means implications for any given scenario. likely to see progress on permitting increased scrutiny in areas where Our only forecast is that, like recent reform. And Republicans tend to the House has oversight authority, history, it’s likely to be close but favor greater defense spending. On contributing to gridlock. Republicans have a favorable mix the other hand, a Republican House § A still Democratic Senate gives of who is up for re-election in the may lead to less Medicare spending, President Biden some leeway on Senate. Other than that, we’ll wait which could incrementally weigh on appointments that require Senate and see how things evolve in 2023. 16