Market Commentaries

  • Midterm Elections Highlight the Week Ahead


    Market Overview


    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 11/02/18. Rates and Economic Calendar Data from Bloomberg as of 11/05/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    Before we dive into this week’s midterm elections, and associated, potential economic and market implications, let’s recap last week’s eventful trading session. Global equity markets finished firmly in positive territory for the week, although it certainly was not a smooth ride. In the U.S., the S&P 500 Index gained 2.45% while the recently troubled NASDAQ Index, heavily weighted toward technology companies, gained 2.66% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, outperformed its larger counterparts with an advance of 4.35%. On the international equities front, developed and emerging markets followed their U.S. counterparts posting positive 3.36% and 6.09% respectively.

    On Monday of last week, stocks attempted to rebound from the previous week’s sell-off as investor’s assessed the latest corporate and economic updates. The rebound was halted when it was announced that the Trump administration might still place additional tariffs on all remaining Chinese imports if nothing comes from upcoming trade discussions between President Trump and Chinese President Xi Jinping. The remainder of the week proved more auspicious as investors; digested positive earnings reports from large cap names such as General Motors and Facebook, saw consumer confidence and wage growth grow, and learned that President Trump had productive conversations with Chinese President Xi regarding trade. As a result, U.S. stocks are now back in positive territory for the year. We feel this echoes what we have been saying for some time – that the threat of a longer term, protracted trade war is keeping a lid on stock market growth potential and once positive news on the trade negotiation front between the U.S. and China is reported, an upside surge in global equities could take place.

    Moving on to this week, the focus is on midterm elections with a light economic calendar. Polls are set to open on Tuesday, November 6 and we will see who takes control of the House of Representatives and the Senate once voting concludes. At this time, based upon data from FiveThirtyEight, it appears likely that Democrats take back control of the House of Representative while Republicans remain in control of the Senate. Based upon our review of historical data related to stock market performance and mid-term elections, we are optimistic that the outcome of the midterm elections could provide some additional steam to the stock market in the months ahead. This research relates to historical stock performance for the six months following midterm elections as well as average historical returns depending on which political party is in control of the White House, the House of Representatives and the Senate.

    There will continue to be a battle of headwinds and tailwinds for the reasons discussed above. Therefore, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolio through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame and tolerance for risk.

    Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.

    Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

    There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

    The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

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