The midterm election is over (for the most part) and the prevailing message for the market is that the outcome went as expected (generally speaking). The Democrats have reportedly won control of the House while the Republicans have maintained control of the Senate.
Said another way, we now have a split Congress, which, said another way, translates for the market as leading to political gridlock for the next two years.
The latter may not be true entirely. Lowering drug prices, improving the nation's infrastructure, and ensuring national security are causes that could garner bipartisan support, but you just don't know until you know.
In any event, there is likely some bipartisan relief for the bulls and the bears that the midterm election is over. That fact has removed an element of uncertainty, which has added to market volatility in recent weeks.
If nothing else, the positive bias in the futures market this morning likely speaks to the relief that the election is done and that the overall result went as expected.
Those thoughts notwithstanding, there will be better efforts to make a connection between the midterm election results and the bias in the futures market, which has the S&P futures up 18 points, the Nasdaq 100 futures up 59 points, and the Dow Jones Industrial Average futures up 142 points.
It will be heralded on one side of the aisle as an outcome that should ensure the Republicans' legislative efforts to this point will remain intact. On the other side of the aisle, it will be seen as an outcome that should stop the momentum of Republicans' legislative efforts in its tracks.
The larger point in the context of today's column is that the outcome of the midterm election is certain to lead to over-analysis in the immediate term about the implications of the election result.
There are likely to be knee-jerk responses that unduly influence the behavior of the drug stocks, the bank stocks, the hospital and managed care stocks, and the industrial and basic material stocks.
That could make for an interesting session for traders, but investors will do well not to get caught up in knee-jerk responses predicated on assumed legislative action or lack thereof.
This is not the first time we have had a split Congress -- and where political gridlock is expected -- and it won't be the last.
The stock market has battled its way through every election cycle, led by the path of interest rates and earnings growth. Those factors matter far more, and while legislative policy certainly plays a part in influencing their direction, it is not the only factor. Monetary policy has a place at the table as well.
We'll hear from the Federal Open Market Committee (FOMC) tomorrow. It isn't expected to raise the fed funds rate at this week's meeting, yet its policy directive should leave the impression that the FOMC is likely to raise the fed funds rate at the December meeting.
The latter would be the case no matter what the outcome of the midterm election was, because the labor market is strong and inflation trends are firming.
There will be plenty to discuss today as it relates to politics. Take it in for informational purposes, but don't take it as gospel. Politics makes strange bedfellows and sometimes strange trading behavior rooted in assumptions more so than fundamentals.