The Top 2 Things I'm Expecting Will Move Markets Through The Rest of The Year
2018's stock market returns started off looking like an EKG heart monitor; spikes, drops and some temporary flat lining. Today the indexes hover around where they started, but I'm watching two calendars of events with the expectation they will move markets more dramatically: Earnings & Elections. I'll explain why:
Mid-Term Elections—Short-Term Pain and Long-Term Gain?
In November, all 435 seats in the United States House of Representatives and 35 of the 100 seats in the United States Senate will be contested. Historically (17 out of 17 times since 1946), mid-term elections have created short term stock price volatility, followed by a market surge. MarketWatch cites “On average, the S&P 500's return between Oct. 31 of the midterm year and Oct. 31 of the following year has been an eye-popping 17.5 percent.” As always, past results do not predict future returns. But it can remind us that the upcoming volatility is typical during a mid-term election year.
Show Me The Money!
Corporate earnings have fulfilled expectations so far. 2017’s tax code revisions (AKA 1.5 trillion in tax cuts) and a strong economy have led to S&P 500 earnings growth of around 20% over prior year. In a sense, the stock market rewarded stock prices in 2017 for the expected earnings growth, and now that hype has become yesterday’s news.
Still, the economy has been heating up with real inflation (2%) and an incredible jobs market. Unemployment of 4% currently hovers near 17-year lows. While the stock market takes time to digest the information, we expect this real earnings growth to carry prices forward over the next couple of years.
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