The Best Rally Since '82

Hi, Folks:


Yesterday’s market surge came on the heels of the President’s announcement that he was willing to work on initiatives with the Democrats to keep the economy growing. It certainly sounded good coming from him but “we will see”! He does love to negotiate, so the Democrats wish list on reducing the cost of prescription drugs, infrastructure build-out and making improvements in healthcare could be in for the best efforts from both parties. In some sense, the selloff’s timing establishing a lower market cost entry point, combined with the President’s show of commitment, could act to improve investor’s confidence.


As the final tally comes in it appears that the voter turnout appears to be the highest in almost 70 years. In midterm elections, the opposition party to the president usually puts in a very strong showing to demonstrate their party allegiance. It should come as no surprise that both parties claimed victory with the Democrats taking the House and the Republican adding to their strength in the Senate. The 30 seat loss by the Republicans in the House is in line with the average loss for either party in years with losses since 1934. It is important to note that according to Factset and CBOE, the average return in mid-term election years from October 31- April 30 in the S&P 500 has jumped from 7.1% to 16.3%.  It is widely believed that the decline in uncertainty must be must be a major factor in the positive spread.


According to J.P. Morgan, U.S. GDP growth should drop from a current range of 3-3.5 for 2018  to 2 -2.5 for 2019. Market volatility with the elections in the rearview mirror should also decline. Given these changes, I will be reviewing all of the major industry groups that might benefit from a House under Democratic control.