The stock market has reacted with a big yawn to the drama in Washington over the House of Representatives speakership. Over the four trading sessions this week during which successive ballots have failed to decide the race, the S&P 500
is up less than 1%. This return is not significantly different than its average over all four-day periods in U.S. stock market history.
Many investors are surprised by the market’s lack of a reaction, but an analysis of U.S. stock market history suggests they shouldn’t be. Understanding that history can teach us valuable lessons about how the markets operate—and how not to be so reactive to the days news. Since the birth of the United States in the early 1790s, there have been 14 speakerships before this year’s that took more than one ballot to decide. The stock market in those years did not perform significantly different than average. The same goes for the bond market. This is illustrated in the accompanying chart. Notice the absence of any overall pattern in the relationship between the stock and bond markets’ real (inflation-adjusted) returns and how many ballots it takes to determine who will be the House speaker.