Good morning contrarians! It is Tuesday, Nov. 8. Election Day in the US, in case you haven’t heard…
State of Play
As of 0630, we’re struggling for direction a little bit:
Stock futures are are up a tiny bit, with the Nasdaq set to open about 0.3% higher;
Cryptos are dropping, with Bitcoin down 5% to trade around $19,700;
Commodities are losing some ground, with WTI crude oil down 1% to trade around $90.50 and natural gas down 6%;
Bonds are flat, with 2-year and 10-year yields unchanged at 4.72% and 4.21%, respectively.
Election Day
Americans go to the polls today to vote in the midterm elections. A ton of ink has been spilled over this already, most of it political porn that can be shrugged off if not ignored outright.
There is some speculation that stocks are due for a rally if Republicans retake the Congress as is widely expected. This is because gridlock is generally good for markets as it cuts down on the chances that ambitious policies become signed in to law. There is also the element of ‘business friendly’ Republicans perhaps helping defense contractors, energy companies, and healthcare, among others.
But with a divided government there is an increased risk of gridlock that becomes so entrenched it is bad for everybody. We’re talking government shutdowns that last longer than a few days and bring economic activity to a standstill. A bruising debt ceiling fight could be one catalyst.
On this topic, be sure to listen to the actionable items highlight reel of Bob Elliott’s appearance on the podcast, which gets into it at some length. This was just recorded yesterday and made available just for you, so please take advantage.
Earnings
Today’s highlights include DIS 0.00%↑, OXY 0.00%↑, AMC 0.00%↑, COTY 0.00%↑, and SG 0.00%↑ .
The Bottom Line©
The election stuff looks suspiciously like it could just be another dose of ‘hopeium.’ Not because Republicans won’t regain Congress, but because investors are putting too much faith in that bringing about the change they’re seeking. A divided government is still a divided government. Yeah it will block ambitious agendas from either side, but that doesn’t mean it will suddenly be great for energy companies. And yes, the risks of sustained shutdowns are certainly increased.
You still have the overhang from a Fed hellbent on raising rates to kill inflation. Fed Chair Powell delivered another very clear message on that last week. Things may need to ‘break’ in the economy before there can be any progress on inflation. That brings all kinds of second-order effects that none of us could have been aware of before. Like UK pensions suddenly creating systemic risk to the global financial system, to name one example.
That, more than any political drama, seems to be the bigger issue facing markets. BWDIK.
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