Tuesday, November 6, 2018

Checking One Headwind Off Our List

Assuming sufficient races are decided, by this time tomorrow we will have crossed one market headwind off of our list. Judging by yesterday's and today's action, market players in the aggregate are comfortable with a Democrat-led House and a Republican Senate. As you know, polls strongly favor that outcome.

I know, Trump & Brexit say you can't trust the polls, but, nevertheless, that's the big money's base case. 

Assuming that's how things fall, tomorrow will be interesting. Feels a little like your classic buy-the-rumor-sell-the-news scenario. Could be, but I'd caution against a big bet either way.

I won't bore you with my speculation as to what happens in a surprise blue wave or a red wave scenario; that one's been beaten to death by virtually every market commentator looking for some clicks.

Beyond tomorrow we're back to (never stopped, actually) assessing whether conditions suggest that odds favor growth in corporate earnings going forward, or contraction. For now it's the former, but we remain open to all possibilities. U.S./China trade issues are utterly huge at the moment.

Below is part of my reply to an emailed question yesterday regarding Apple's prospects (taken from the part where I touch on Apple in a protracted trade war scenario). This speaks to the overall market as well: 
"Right now it's all posturing, they literally have to come to terms, or, if it gets escalated as threatened, the markets and the global economic outlook will be a mess into 2019... We should think that the political risk is too high and that odds still favor, at a minimum, the beginning of legitimate negotiations."

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