For financial markets, one takeaway mattered above all others in the midterm election—no curveballs.
And that’s basically what was delivered as pundits who got it so wrong in 2016 correctly forecast the end of one-party rule this time. With Dems calling the shots in the House, we could see no end to investigations, subpoenas and possibly impeachment talk and a hard push for POTUS to cough up those tax returns.
All that may slow down President Donald Trump’s MAGA plans, but as the dust continued to settle on those results, the head of one big bank sounded fairly chill.
“As you look forward from here, I’m not a big believer this is going to have a big impact on policy action or Washington or where we are as we move to 2020 elections,” Goldman Sachs’s CEO David Solomon told Bloomberg, in an interview out of Singapore.
To be sure, a fire appears lit under investors this morning, and our call of the daysays to expect more buying fever where that came from, now that the midterm cloud hanging over markets for months is finally clearing.
“Following this week’s volatility and the FANGs selloff this week, we’re likely to see traders getting back in and buying the dip. The elections have been a win for both the Republicans and the Democrats, and this will bring balance to the market,” said Mike Read, founder of social trading platform Pelican, in emailed comments.
He says the past few weeks have seen some breath holding and lots of uncertainty over the outcome: ”That’s now changed. Division between warring parties has now settled, and the situation is no doubt far less volatile and market confidence will resume.”
And that means, get ready for investors to start rushing back into stocks after October’s mayhem, and that is not even dictated by a falling dollar, which is definitely under pressure postelections.
“We’ve seen the cycle of a constant drive upward in the S&P 500 SPX, +0.63% in the last quarter and over recent years—traders have made a lot of money on it, there’s now an expectation that this will happen again. This view has been strengthened given the recent selloff, traders are now looking to buy the dip while the market cools off following the results,” Read says.
Full agreement all around? Not quite.
Last word goes to Lena Komileva, chief economist at (g+) economics, who says policy visibility will be a clear casualty of a split Congress: ”For the markets, this means a deteriorating political noise-to- growth dividend ratio in 2019. This is a recipe for higher volatility and greater asset valuation headwinds ahead.”
Dow YMZ8, +0.58% S&P 500 ESZ8, +0.65% and Nasdaq NQZ8, +0.96% futures are higher, and don’t forget a two-day Federal Reserve meeting kicks off Wednesday. The S&P SPX, +0.63% Dow DJIA, +0.68% and NasdaqCOMP, +0.64% rallied into the close Tuesday.
The dollar DXY, -0.49% is under some intense pressure, while gold US:GCU8 is up a little, but crude US:CLU8 is lower.
Check out the Market Snapshot column for the latest action.
European stocks SXXP, +0.96% are in rally mode, but Asia ADOW, +0.12% had a mixed day.
From that bullish call to this bullish chart of the day from HSBC Global Research equity strategists who say the October sell-off has “improved the risk-reward for equities,” and see opportunities in beaten-down tech shares for one.
Ben Laidler, global equity strategist and his team say the key ingredient for the correction to continue is a recession, and without it, a deeper pullback is not happening.
Here’s HSBC’s chart that shows recent equity action tracking a “typical correction playbook” — a pullback that can last as long as two months and recover in five.
Midterm elections went largely as expected with the Dems taking the House and Republicans keeping the Senate, but it was also a big night of firsts, such as the youngest woman and first Muslim women elected to Congress, not to mention the unprecedented number of female candidates and the first openly gay governor. Oh, and the dead brothel owner, Rep. Dennis Hof, was set to win in Nevada.