Divided government doesn’t have to be divisive

Welcome to 2018 AM — after midterms.

The House of Representatives goes to Democratic control, but by a smaller majority than is usually accomplished by the party not in the White House in the midterm election.

The Republicans, however, gained further control of the Senate, which is where many of the ongoing investigations that began in the House of the intelligence agencies will move to in January.

Given that the blue wave was somewhat muted, The Dems should think about bringing in some fresh blood in its leadership roles. Moderates, who will be around in the next 10 years and ran on something more than being anti-Trump. If not, and the plan is to be obstructionist, then we could easily see a reversal in two years.

If the Dem leadership pursues impeachment hearings against President Trump and or Supreme Court Associate Justice Brett Kavanaugh, which will go nowhere since the Republicans control the Senate, then it will be a long, unfruitful two years of gridlock.

Something that the country will endure, but it will not improve the economy or anyone’s lives. The markets like divided government since very little regulation comes out of it, but people’s lives suffer, since little in the way of benefits come to light either.

So we move on and see what can be finished with this session of Congress and more importantly, what Special Counsel Robert Mueller has to say about the 2016 presidential election.

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Nothing to see here, please go buy some FANGs

The British voters threw PM Theresa May a big curve ball Thursday in the general election by not giving her Conservative Party the majority she sought, forcing her to seek to form a new government with minority political parties.

Also on Thursday we had ex-FBI Director James Comey testify before the Senate on his firing and the probe into Russia’s influence into the US presidential election.

Neither of these events had an effect on the markets, which is puzzling in the brief and troubling in the longer term.

To say the possible beginning of a presidential impeachment occurring in Washington and equities give you a day where as traders say “was a waste of a clean shirt and car fare,” is astounding.

As I wrote yesterday, market participants that I speak with see Friday as a possible tipping point for equities, looking at the futures market then the tipping point maybe the markets building support instead of falling.

Not to get into high weirdness, but how does the British, USĀ  and global investors see a government crisis in London and Washington as a buying opportunity unless there are bigger buyers to buoy prices?

So let’s see how US markets close today and then we may get an idea of what is to come.

Markets sink on ‘I’ word, and it’s not inflation

The stock market Wednesday was shocked to hear the “I” word, and it had noting to do with inflation.

The impeachment word is being used on Capitol Hill, which took the street by surprise and sent the Dow Jones industrial index plunging 373 points or -1.8% for the day.

While the impeachment process will probably not take place and is just Democratic bluster, investors believed that the Trump Pump of tax cuts and infrastructure spending will probably be put off even further while dealing with these investigations.

So Wednesday became the Trump Dump, which many market technicians believe needed to have a sell off to build a solid bottom to move higher. The VIX index, which measures volatility, soared more than 40% yesterday and is up nearly 60% in the last 5 trading days.

This index measuring investor sentiment was below 10 just over a week ago and Thursday morning is hovering at 16, which is still on the low side historically.

Thursday morning’s futures show the Dow shaving another 100 points at the open, which would give the exchange a 2% move down for the two days, which is not enough of a shake out.

A 2,100 point move to the downside would put stocks into correction mode of being off 10% from the recent highs, which would put the Dow at around 19K.

If you look at the economic data a 10% move downward in stocks is warranted as GDP is straddling the flat line of 0% growth, while Federal Reserve projections are looking for 4% growth in the second quarter, which is pie-in-the-sky thinking.

So there are two “I” words now that can hit the market. Inflation is not the worry. Impeachment is the word du jour, but I don’t feel that word has legs from the information that is out there right now.