Market Analysis

Do-Nothing Market Heroes

Our politicians are on a roll with a rash of ill-considered legislation.

Our politicians are on a roll with a rash of ill-considered legislation. Trade barriers with China. Proposed additional regulation on lending. Declaring carbon dioxide a dangerous pollutant.

We're comforted this is a third-year of a presidential term, and overall not much is likely to pass. Already, Speaker Pelosi's plan for an ambitious legislative term has devolved into a series of "non-binding" resolutions. Is anyone else confused about the purpose of a "non-binding" resolution? What is the message they're trying to send? "We're serious enough about this to vote on it, but not so much that it has to be official. Phew! It's been a busy two-day work week."

While we're confused why our tax dollars go towards the passage of non-binding resolutions, we're generally pleased to see nothing getting done. As puzzling as politicians are, they're highly predictable—profitably so.

As President Bush knows all too well, a president's party nearly always loses relative power in the mid-terms. If he doesn't ram through his landmark legislation in his first two years, his odds are not good in the last two. Legislation nearly always means a redistribution of wealth or property rights. Nobody likes that. Try taking something away from even the most strident Communist and he'd cry, "Mine! Not fair!" A busy legislative calendar leads to heightened risk aversion and unhappy markets—historically averaging 7.2% and 8.7% in the first and second year respectively with a far greater share of negative years than the back half.

But third-years are uniformly glorious—we haven't seen a negative third year since 1939! With less relative power, presidents can't get much passed. Politicians are looking to the next elections and aren't interested in stretching their necks over a potential political chopping block. Legislative risk aversion melts away, leading to an average 20% return for third years.

This year shouldn't be much different. Congress is divided and President Bush isn't exactly riding a wave of popularity. Aside from an admittedly worrisome rash of protectionist rhetoric, non-binding resolutions are the order of the day. Which is why resurgent talk of the Equal Rights Amendment is puzzling. (Read more about it here -

Meanwhile, Madame Speaker, self-acknowledged champion of the ERA, is putting herself in a sticky spot by crafting her own foreign policy and making pals with nations where subjugation of women is institutionalized. Or maybe not. Maybe she believes only American women "deserve" equality. Girl power.

However you feel about the ERA, passing a constitutional amendment is serious business and likely to lead to heightened legislative risk aversion and greater stock volatility. Might not, but we'd prefer a do-nothing Congress to a crusader Congress. We're mindful, but not overly concerned that something as major as a constitutional amendment is likely to pass this year—the power of the third-year will prevail. This year ought to be stellar for stocks. Load up.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.