This week, all the talk around the newsroom is politics, politics, politics. What with the Democrats convening in Denver to nominate Barack Obama to be their presidential candidate, and the Republicans meeting next week in Minneapolis-Saint Paul to select John McCain, it’s no wonder. But, politics and the economy are closely linked. After all, almost every poll out there shows that Issue #1 among American voters continues to be the economy. The link is so close, in fact, that the presidential hopefuls are talking about the economy almost as much as I do. So, as they rally their party conventions for support over the next two weeks, I decided this is a good time to take a look at how party control in Washington can affect your money.

One way to measure that is to look at stock market performance, but I have to emphasize that what’s good for the markets doesn’t necessarily correlate with what’s good for the economy. Still, if you have investments in mutual funds, 401(k) plans, or individual retirement accounts — and a great deal of Americans do — then pay attention. The truth is we can find a correlation between party control in Washington and stock performance over a given time horizon that does affect your investments.

The folks at Standard & Poor’s Capital IQ, a financial analysis firm that crunches numbers for clients on Wall Street, decided to make that comparison. They calculated the average annual return of the S&P 500 stock index over the last 50 years, correlating stock performance with the party in power in Washington — coming up with some very interesting results:

1) Counter to what many suspect, the markets prefer a Democrat in the White House. Over the last quarter century, the S&P averaged an annual increase of 18 percent for the years a Democrat sat in the White House, compared to just 11percent for those years we had a sitting president who was a Republican.

2) However, the markets prefer Republicans when they are in control of both the White House and Congress. In fact, over the last half century the S&P saw an average annual increase of 15 percent when Republicans were in control in both the executive and legislative branches, compared to only 11 percent when the Democrats dominated both branches.

3) But, what the markets like best is for the parties to split power between a Democrat in the White House and Republicans in Congress. Over the last half century, the S&P returned a whopping 22 percent on average with a Democratic president and a Republican-dominated Congress, compared to a mere 11 percent when the tables were turned.

So, what do we learn from all this? Most people think of Republicans as the party of free markets and “trickle-down economics,” policies that should be endearing to investors putting their money in publicly traded companies. But, what the markets seems to prefer is gridlock in Washington – in other words – good old checks and balances. Go figure! Perhaps stock investors prefer a Republican Congress to pass market-friendly laws, but a Democratic president to check some of their excesses. That’s speculation. Just as important in my view, is the fact that no matter who is in office, the market continues to perform well enough to beat the rate of inflation. That’s good news for your investments and your money in the long run, no matter who wins the elections in November.