Check the background of this financial professional on FINRA’s BrokerCheck

Midterm Election Perspective

by Garrett Kunz   ·  Nov 07, 2018  
thumbnail

The consensus was right. Although some votes are still rolling in, the Republicans have held onto their Senate majority (and they are tracking to add at least a couple seats to their majority), while the Democrats are poised to retake control of the House of Representatives with what looks like a 34-seat swing. you could call it the “something for everyone” election, as both sides are seemingly pleased with the results. We will only scratch the surface on the investment implications, but look for more from us on these topics in the coming days.

It’s a Gridlock

So is gridlock good? Perhaps. S&P 500 Index futures are up solidly overnight. Moving past the uncertainty is positive. The market got what it expected, which—all else equal—is positive. Some investors like checks and balances that can take extremes out of play. The S&P 500 is now in the 12-month period post-midterms, and the S&P 500 has not been down in this period since 1946. Based on history, Republican presidents and a split Congress have been one of the best combinations for stocks, which have gained 15.7% on average in this scenario based on the S&P 500, as shown in the LPL Chart of the Day.

Whether you like the election results or not, we think the key market drivers will remain the same. “Trade and the Federal Reserve will still be primary considerations for investors despite the outcome of the midterm elections,” noted LPL Chief Investment Strategist John Lynch. “Our focus will remain on the solid fundamentals supporting economic growth, the direction of interest rates, and the impact of record corporate profits on the financial markets.”

Areas to Watch

While we believe the broad market will continue to take cues from fundamentals, as it should, some areas of the market are politically sensitive and may be impacted by this election result. Below are some areas to watch:

  • A small infrastructure bill is a possible are of compromise between the President and the House Democrats.
  • The Spending trajectory remains higher even under divided government, though perhaps less so now.
  • Medicaid expansion may be in the cards under more Democratic leadership, while efforts to control drug prices are likely to continue.
  • Deregulation efforts by Republicans may slow down, though executive orders remain in play.
  • Financial services. The House Financial Services Committee will not be nearly as friendly to the financial services industry. The committee’s efforts may slow the pace of the President’s deregulation efforts.

stock market performance financial advisors

IMPORTANT DISCLOSERS

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Member FINRA/SIPC

LPL Research Tracking #1-790450