As investors we must be politically agnostic. Whatever our political ideology (I certainly have one) we must ignore it, and look at politics strictly in terms of “how it will move the markets over the next 12-18 months.”

We can vote, and hope for things that in the long-term will have a positive impact on the economy, and therefore have a positive impact on the future of the markets.

When we look out over the next 12-18 months at the political environment we can make one of two big assumptions. Either there will be change/action or there will be status quo.

With change and action comes uncertainty. The markets do not like uncertainty. Also with change and action the government effectively picks winners and losers. The markets react accordingly.

With gridlock, status quo, inaction, whatever you would like to call it comes a certain relief that is usually positive for the markets. When government is unable do get anything done or passed, there is little uncertainty about the more immediate future. Things will continue as they are. In the more short-term gridlock in Washington and governments around the world is typically a big positive for the markets.

My best attempt at a sports/government/market analogy to illustrate this point goes as follows.

The NFL and the referees in a football game are like government. Before the game you the investor bet on one team based on a certain set of rules and assumptions. Equate that to investing in the market in general, a sector, category or stocks, or a particular stock. Then at halftime you get word the NFL has decided to go back to early 1900s rules that do not allow for any forward passes. The government/NFL has completely changed the environment and your assumptions about the environment moving forward. You may decide that you want to change your bet given the new rules, or you may even decide to bet on a different game entirely based on this new information.