When the polls close Tuesday night, stock strategists expect to see a Republican Senate and a Democratic House — and a still bullish scenario for stocks.
That's because a split Congress would cause old-fashioned gridlock, viewed as a positive by markets as Congressional efforts to enact or reverse legislation are stymied. Bank of America Merrill Lynch says the best S&P 500 returns under a Republican president occurred while Congress was split, a scenario that generated 12 percent annual returns.
But the downside is the Democrats in the House of Representatives could block some key initiatives and House controlled committees could make life tough for a president who has had a free hand in forcing tax law changes and deregulation. It would also be hard for that Democratic House to undo any of Trump's pro-growth policies or follow through on impeachment efforts.
"I don't think it causes a big rally. I think they will look at it and say, 'okay, stalemate will probably be good,'" said Art Cashin, director of floor operations at UBS. On average, the S&P 500 has been up 16.7 percent in the 12 months after a mid-term election, going back to World War II, according to CFRA.
Steve Massocca, Wedbush Securities managing director said there could be some negative fallout from a split Congress, since Democrats would hold committee chairmen seats in the House. "To what extent are they able to disrupt the Trump agenda will weigh on peoples' minds," he said.
"Donald Trump, the agenda, is very good for the markets. Less regulation, lower taxes," he said.
But things could get volatile if Congress does not end up split, the base case expected by firms like Goldman Sachs, Morgan Stanley and Citigroup.