We wonder where the over-under would fall on the number of times the term "midterm election" is used in today's missives from market commentators. We're already at one and that's after the first sentence.
The midterm election will be talked about ad nauseam this week, as there will be previews, reviews, and postmortems.
Like it or not, you're stuck with that perspective because the stock market is reportedly keyed up about the outcome, which is another way of saying it could act in a volatile fashion on matters related to the midterm election.
The conventional polling wisdom suggests the Democrats are likely to win majority control of the House and that the Republicans will maintain majority control of the Senate. If so, it will be a split Congress, which will then invite the term "political gridlock" into the narrative to a nauseating degree.
The midterm election is important. We don't want to imply that it isn't. There will be some initial volatility -- some knee-jerk reactions -- when the results are known as traders extrapolate what the composition of Congress will mean for certain industry groups and sectors.
Pay attention, but don't let the knee-jerk responses distract you from this important point: the hurdles for the stock market are rising interest rates, the trade tension between the U.S. and China, and the slowdown in foreign economies, all of which are a headwind for earnings growth.
Those matters, which we called attention to in the latest installment of The Big Picture, aren't going to be settled no matter what the composition of Congress looks like come November 7.
In other words, the midterm election is going to come and then it is going to go. It might influence how market participants think about the path of interest rates, trade tension, and the global slowdown, but it won't eradicate the concerns about the those issues, which precipitated the October sell-off.
Maybe that understanding is factoring in this morning or maybe it isn't.
The trading action on Friday certainly made it evident that trade matters are an ongoing source of volatility, that rising interest rates and inflation angst are an ongoing source of volatility, and that economic slowdown concerns are an ongoing source of volatility and a basis for why the market has not taken off despite third quarter earnings being on track to increase 24.9% year-over-year, according to FactSet.
Currently, the futures for the S&P 500, Nasdaq 100, and Dow Jones Industrial Average are little changed and trading close to fair value, which suggests today's opening move will be relatively flat.
Excluding the midterm election, other focal points this morning include the official implementation of economic sanctions on Iran by the U.S., a rehashed acknowledgment by President Xi that China will continue to open its markets to the world, and Lowe's (LOW) revising its FY18 EPS guidance lower after announcing the closure of 51 underperforming stores in the U.S. and Canada.
There are other items, too, like Berkshire Hathaway's (BRK.B) earnings report, yet the midterm election remains the lead talking point for understandable, and perhaps overstated, reasons.