Post Election Outlook & Analysis

Remember: the last midterm election after which the market was lower 12 months later occurred on November 5, 1946.

Indeed.

Ultimately, Tuesday’s election followed the most probably route (for a change). With the GOP losing the House, making gains in the Senate, and maintaining a slim edge in Gubernatorial offices as Democrats managed a small net gain.

The most interesting aspect of the night? The Democratic conquest of the House. And it’s worth a closer look. As we believe the GOP House defeat had three primary causes.

First, the unique aspects of the 2018 electoral landscape that saw Republicans had to defend 41 open House seats. Of which eight were in districts carried by Secretary Clinton in 2016. Seven went to Democrats. Another 10 were suburban districts where Trump won only by single digits in 2016. Eight of those went Democratic. In at least three districts, GOP incumbents who had declined to identify with Trump — and Mike Coffman of Colorado, Barbara Comstock of Virginia, and Carlos Curbelo of Florida — were sent to defeat.
Continue reading

Week In Brief: November 16th

Rough month for global equity indices. Yet, we remain above the March lows. At which time the S&P 500 fell to 2,588. three percent beneath today’s level. For now, the primary uptrend remains higher. Though pragmatic market observers must recognize that the trendline could be in jeopardy should this month end with lower lows.

This places investors in a waiting game. As we believe the current bout of volatility to be like the many others incurred throughout this bull market. Providing, in the end, to be a healthy, “Scare-all-the-weak-hands” correction. Separating the wheat from the chaff. So long as indices reverse course — then the current fireworks simply set the stage for the next run higher. Just when such a move is least expected.

Of course, that just happens to be how Mr. Market operates. One minute? Your best friend. The next? A stone-cold killer. Continue reading

Midterm Election Analysis

WARNING: tomorrow’s election outcome will determine the very future of our Democracy.

Or not. In fact, you can add the above to all of the other ridiculous and exasperating nostrums being cast about of late.

Wednesday morning? I’ll miss the political attack ads. The venomous vitriol. The half-true allusions. The far-flung aspersions. And the embarrassing quantities of negativity we are forced to endure in support of what should be one of our most joyous annual occasions. The day on which we exercise our rights as free, liberty-loving members of this greatest constitutional republic on earth.

Most people tolerate these caustic incursions into their lives in the same way they contend with hemorrhoids. Largely ignoring them. Biting one’s lip when the discomfort gets too high. And waiting for that blessed moment when these painful annoyances dissipate into memory.
Continue reading

Week In Brief: November 2nd

Following the previous week’s four percent decline, and the ten percent overall correction, the S&P 500 managed to climb 2.47 percent this week. Shaving some of the October losses. And lending an air of optimism to a pervasively ominous sentiment.

As of last Wednesday, more than 75 percent of stocks in the S&P 500 were 10 percent or more below their highs of the past year. Marking an official correction. The second of the year following February’s -10.02 percent decline. Such circumstances whereby 75 percent of index stocks are in correction has occurred five times since the 2009 bull market began. Three of which quickly formed bottoms. The other two saw further selling in the near term. Ultimately, however, they recorded solid gains over the following two, three and 12 months.

Interestingly, S&P 500 returns went temporarily negative for the year. This has happened after at least 100 days in positive territory only five other times since 1929. In all cases, the benchmark index was up solidly three and six months later. With the best result being an 11 percent gain in three months following the October 19, 1987, Black Monday crash.
Continue reading

The Evolution of Fear.

For investors the world over, the last week has been anxiety inducing. Gripped, as we’ve been, by a cocktail of fear-inducing biological responses comprehended by few.

First, a contextual digression.

Consider February’s 10.02 percent correction. The week before that occurred, we saw $25 billion in new cash flow into stock funds. The sixth-largest amount on record. Largely a consequence of Main Street investors finally pouring back into equities after sitting on the sidelines for most of this historic nine-year bull.

The number of individual investors claiming to be “bullish” jumped to 60 percent. The highest reading in over seven years, according to the American Association of Individual Investors. Continue reading

Week In Brief: October 19th

Ouch? Easily an understatement. The recent sequence of events has had global investors screaming like a gaggle of teenage girls at the Haunted Insane Asylum.

The last two weeks have been a classic Halloween Horror Show. The S&P 500 closed Friday at a shockingly oversold level. More than 3.7 standard deviations below its 50-day average. For context, one standard deviation below the 50-day average is considered a normal oversold condition. Two standard deviations are considered extreme. So, when you go to almost two times extreme, you’re into adjectives like colossal, apocalyptic and ridiculous.

Weakness in U.S. stocks these past two weeks can be traced to multiple factors. Trade issues with China. The risk of an Italian debt blow-out. Brexit or not. The risk of a spike in oil prices exacerbated by the Saudi situation. Together, they’ve given rise to enough uncertainty to explain the sudden decline in stocks. Historically, the uncertainty of a mid-term election is also enough for stocks to fall into Election Day and then start to rise as uncertainty lifts. Add in the Fed’s interest-rate hikes and, presto! A ready-to-order souffle of fear and uncertainty. Continue reading

Week In Brief: October 5th

Beware October 10th. Historically, 10/10 has been to stocks what The Bogeyman is to children’s nighttime affairs. Downright spooky.

10/10 has been the nexus of many historical highs and lows. In 2002, it served as the nadir of the dot-com bust. In 2007, it proved the apex of the bull market. And the start of a year-long descent into the steepest bear market of our lifetime.

This year, 10/10 yet again refused to recede into the calendar year without making its presence known.

Accordingly, yesterday saw the S&P 500 fall for the sixth straight day. Plummeting 3.29 percent. While the Nasdaq completely gave up the ghost, losing 4.08 percent. U.S. equities fell the most in a single day since February. When markets experienced a 10.02 percent pullback. Today, more of the same. With the S&P 500 and the DJIA falling 2.06 2.13 percent respectively.
Continue reading

The Politicization of Everything

In last year’s letter to shareholders, Warren Buffett sagely counseled, “If you mix your politics with your investment decisions, you’re making a big mistake.”

We’ve long recognized such wisdom. As markets care little for party politics. Preferring to focus on earnings, productivity, efficiency, and other achievement-oriented metrics that rarely resonate within the political spectrum.

Unfortunately, many have ignored Mr. Buffett. Allowing politics to invade their daily lives.

The Kabuki Theater of American politics, and its interminably caustic media coverage, has become like Norway’s summer sun. Omnipresent.

We get it. President Trump is a blowhard. Lacking couth. Diplomacy. The placid demeanor expected from the Oval Office. The media abhors him. The right is terrified of him. The left detests him. And since the 2016 election, there is not a move this administration has made that has been left unscathed by critics. Continue reading