The stock market's best returns have occurred under Democratic presidents with a split Congress

Published Thu, Nov 5 202011:43 AM ESTUpdated Sat, Nov 7 202011:35 AM EST

Vote counting continued Thursday in the tight presidential race, but odds of a Joe Biden win and a split Congress have increased. If that's the final outcome, history shows that this type of gridlock in Washington has been quite market-friendly for stocks. The stock market has enjoyed the best returns under a Democratic presidency and a split Congress, according to Sam Stovall, chief investment strategist at CFRA Research, who analyzed data going back to the end of 1944. The S & P 500 has rallied 13.6% on average during a calendar year with such a political makeup, the data showed. The market is already on the move higher in anticipation of this set-up. The S & P 500 was up for a fourth straight day on Thursday, bringing gains this week to more than 7%. Gridlock in Washington could mean that large tax hikes are off the table, giving support to corporate earnings and market valuations. Meanwhile, a divided government is expected to keep in check the ongoing antitrust scrutiny, which could be a major headwind for Big Tech. Finally, the U.S.-China trade relationship is less likely to deteriorate under a deadlocked government. Investors are piling into technology stocks with the fading odds of both the White House and Congress coming under Democratic control. A Democratic sweep could lead to higher taxes and tighter regulations, hurting high-growth companies. "Notwithstanding the possibility of a contested election , as the minutes tick by it is increasingly likely that a Biden victory will mean a split Congress," Sean Darby, Jefferies' global equity strategist, said in a note Thursday. "US equities have tended to perform well and outperformed global equities during a US Gridlock when the Democrats have won the Presidential election," Darby added. Democratic nominee Biden held 253 electoral votes after racking up projected wins in Wisconsin and Michigan, leaving him 17 shy of the 270 needed to win the White House, according to NBC News. The presidential election has come down to just a few states: Arizona, Nevada, Georgia, Pennsylvania and North Carolina, which have not been called by NBC News. Meanwhile, Republicans seem likely to retain control of the Senate. Republican Sen. Joni Ernst is projected to win the Iowa Senate race , according to NBC News. Meanwhile, Maine GOP Sen. Susan Collins is the apparent winner of her reelection fight against state House Speaker Sara Gideon, according to NBC News. Gideon conceded on Wednesday afternoon. Democrats will keep control of the House of Representatives, NBC News projected. — CNBC's Michael Bloom contributed reporting.

Democratic U.S. presidential nominee and former Vice President Joe Biden speaks about the results of the 2020 U.S. presidential election during an appearance with in Wilmington, Delaware, U.S., November 4, 2020.

Kevin Lemarque | Reuters

The stock market has enjoyed the best returns under a Democratic presidency and a split Congress, according to Sam Stovall, chief investment strategist at CFRA Research, who analyzed data going back to the end of 1944. The S&P 500 has rallied 13.6% on average during a calendar year with such a political makeup, the data showed.