A SPLIT CONGRESS WOULD BE MARKET NEUTRAL – FOMC WILL BE CRITICAL THURSDAY
Posted by Pete Stolcers on November 06
Posted 9:30 AM ET – This is the moment we’ve been waiting for. Today voters will decide if Trump’s agenda is working for them. A split decision where Democrats win the House and Republicans maintain the Senate would be fairly neutral. Trump would be dragged down by investigations and impeachment hearings, but he will fend them off. New tax cuts would not get past Congress, but Trump can continue to reduce business regulations from the Oval Office. If Democrats control Congress the market will drop and if Republicans maintain control of Congress the market will rally. There is also a major event on Thursday.
The FOMC statement will be critical. Bond yields have broken through resistance and the Fed has been hawkish. They are likely to raise rates in December and at least three rate hikes are projected in 2019. Domestic economic growth is strong, but global growth is faltering. Investors are worried that the Fed is too aggressive. It’s possible that the recent market decline will soften their tone. The Fed does have some breathing room and hourly wages were only up .2% in the last jobs report. If they hint that the December rate hike could be postponed, the market will stage a year-end rally. If the Fed is hawkish the market will drop.
Domestic economic growth is strong and earnings are robust. Investors are hoping that global activity won’t drag our economy down and that it won’t reduce earnings in 2019. Over 75% of companies have reported and 78% have beaten estimates. Earnings growth is up an incredible 25%, but the comps will be tough next quarter.
There are some credit concerns and Italy is not budging on its budget. It plans to run a large deficit next year and this is weighing on the EU.
The most likely scenario is a congressional split and dovish remarks from the Fed. This would spark a small year-end rally. There is no chance for a trade deal with China this year and that will keep a lid on the rally. In 2019 the rhetoric between the two largest economies will be critical. If progress is not being made and global growth continues to drift lower we will see a market decline.
Swing traders need to remain in cash. Once we have clarity and the direction is apparent we will take action.
Day traders should look for choppy conditions. The market will “work” both ends of the range today. Once the momentum stalls in one direction it is likely to reverse. Traders are squaring up and the volume will be fairly light. I am reducing my size and trade count today.
Let’s get this news out of the way so that we can trade.
Market commentary provided by OneOption, LLC a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.