How Could These Events Affect the Markets?
Midterm elections may be over, but what could the results mean for the markets? And could other recent events have an impact? Read on to get the details…
What Does the Midterm Outcome Mean for Markets? – the U.S. election is now behind us, and the results were largely as many expected – Democrats won the seats needed to take control of the House of Representatives, and Republicans maintained (and actually strengthened) a majority in the Senate. Historically speaking, midterm elections tend to ‘rhyme,’ as the president’s party tends to lose seats in Congress. In fact, this is the fourth consecutive election (2006, 2010, 2014, 2018) where at least one chamber of Congress flipped in terms of party control.1 There are a few implications to consider in the current environment. First is that markets tend to respond positively to political gridlock (see next point below). Republicans in the House have little chance of advancing legislation, but Democrats are also hamstrung in the Senate. President Trump has veto power. This outcome actually creates a bit of legislative certainty, which markets like, in my view. The second implication is that we need to now watch how Democratic control of the House could put Wall Street in the middle of some political battles, and how Democrats could push back against Trump’s efforts to negotiate trade deals and deregulate the energy industry. The final implication is one where we should actually watch for bipartisanship, as it relates to tech regulation and an infrastructure bill. Those are two areas where Democrats and Republicans actually have a shot at working together.
Know where you stand in terms of your long-term investment goals!
While you cannot predict exactly how these stories will pan out or how they could affect the market, you can try to prepare for what’s to come. And, knowing your net worth is a great place to start as it is critical to your financial well-being and can help you prepare for what’s ahead.
If you have $500,000 or more to invest and want to understand how to measure your net worth, download our guide Measuring Your Net Worth.2 Simply click on the link below to get your copy today!2
By the Numbers: What Midterms Have Meant for Markets – historical performance trends do not tell us what to expect going forward, but they can offer insights. The ‘midterm election effect’ is one that garners a lot of attention, particularly since the S&P 500 has not declined in the twelve months following a midterm election since before 1950. You could call that consistent. In the twelve months following a midterm election from 1950-2014, the average return of the S&P 500 was +15.3%. But we can take the historical data a bit further, and look at the average annual return in years where the Democrats control the House and Republicans control the Senate and the White House. From 1933–2016, that number is +10.8%.3
Investors Should Brace for an Eventful November – media coverage of the midterm elections is largely behind us (to the relief of many), but investors should expect a busy November with other events and news that could affect the markets. We see three in particular. The first is the Federal Reserve board meeting that took place on November 7–8. Few expected a rate increase to come of this meeting, and as expected, the committee unanimously approved keeping the federal funds rate in a range of 2% to 2.25%.4 Still, we could see a hike from this year’s final meeting in December. The second is the U.S. sanctions against Iran, which could serve to potentially disrupt global energy markets and perhaps the price of crude. U.S. crude prices have fallen about 15% since the end of September, though the declines may be tied to market volatility and increased OPEC output. The Iran sanctions could disrupt supply and affect prices, though for now the Trump administration issued eight temporary waivers from Iran oil sanctions to China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey. The waivers allow those governments to continue buying Iranian oil for 180 days, with the option for an extension if they provide plans to eventually halt such purchases. The final November factor to watch is where the U.S. and China move on trade. President Trump and President Xi Jinping of China are set to meet at the G20 in Buenos Aires later this month, and market watchers will be watching eagerly for any sign of breakthrough or progress on trade.5
How U.S. Companies are Responding to Tariffs – in a detailed analysis of nearly a third of Q3 earnings calls, the Wall St. Journal found that U.S. companies are increasingly mentioning tariffs and how they intend to respond to them. The responses given were largely focused on price increases, changes to supply chains, or both. Executives or analysts at about 130 S&P 500 companies mentioned tariffs or the phrases “China trade” or “trade war” about 600 times during earnings calls, and many mentioned the prospect of slowing earnings growth next year. Overall, third-quarter per-share earnings for S&P 500 companies are on track to rise over 25% from Q3 last year, with about a third of those gains owed to the tax cut – an effect likely to wear off next year. Should tariffs jump to 25% on the $200 billion of Chinese imports that currently face a 10% levy, as expected, it could force U.S. companies to continue making adjustments downward.6
While we may not know how all these stories will pan out, or how they could affect the market in the long-term, knowing your net worth can be critical to your financial well-being and can help you prepare for what’s ahead.
Calculating your net worth may give you a better idea of where you stand in terms of your long-term investment goals. If you do not currently know your net worth, then now may be a great time to calculate it.
If you have $500,000 or more to invest and want to understand how to measure your net worth, download our guide Measuring Your Net Worth.7 Simply click on the link below to get your copy today!
2 ZIM may amend or rescind the “Measuring Your Net Worth” guide for any reason and at ZIM’s discretion.
3 Strategas, Quarterly Review in Charts, October 1, 2018
4 CNBC, November 8, 2018. https://www.cnbc.com/2018/11/08/fed-leaves-rates-unchanged.html
5 The Wall Street Journal, November 6, 2018. https://www.wsj.com/articles/not-just-midterms-investors-bracing-for-packed-november-calendar-1541509200?mod=djem10point
6 The Wall Street Journal. November 4, 2018, https://www.wsj.com/articles/companies-feel-the-tariff-pinch-1541350800?mod=djem10point
7 ZIM may amend or rescind the “Measuring Your Net Worth” guide for any reason and at ZIM’s discretion.
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