From the desks of Stanley Katz & Lauren Madera
WISHING ALL WHO CELEBRATE, HAPPY DIWALI! MAY THE LIGHTS OF DIWALI BRING YOU JOY, HEALTH, AND ENDLESS HAPPINESS.
Once again, the three major U.S. stock market indices finished lower this week (DJIA: -0.94%, S&P 500: -2.68%, Nasdaq: -3.37%). The economy was the calm part of the story. Employers added 165,000 jobs in October, well above expectations, and the unemployment rate edged down to 4.1%. The turbulence stemmed from Tuesday’s midterm elections, which shifted control of both chambers of Congress. A Wednesday rally gave way to a sharp sell-off on Thursday as investors reconsidered what the results could mean for corporate earnings and regulation. Technology and semiconductor stocks had their worst day since March 2020, weighed down by concerns over tighter AI oversight and disappointing outlooks from major chipmakers. Stocks recouped some ground on Friday, though not enough to erase the week’s losses.
J.P. Morgan’s latest “On the Minds of Investors,” published the day after the election, takes up the question markets wrestled with all week: What does a Democratic Congress mean for markets? Their short answer is divided government, with Congress positioned to check the White House and vice versa. That likely rules out new government stimulus for the next two years, though they expect compromise to keep the government funded. The part worth reading closely is their take on AI. The election gave fresh momentum to local opposition to data centers, often tied to rising electricity bills. Although statewide bans have mostly stalled, tougher permitting could delay projects and raise costs. J.P. Morgan expects the AI boom to stay on track, even if it becomes costlier, slower, and concentrated among the biggest, best-funded players.
Capital Group asked four of their investment professionals what the results mean for markets, and the feedback was notably measured. Their political economist cites a telling pattern — control has changed hands in 10 of the last 11 elections. That is a sign of how restless voters remain and a reason not to assume this year’s result says much about the next election. Their fixed income portfolio manager adds that new leadership won’t shrink the federal deficit, which is expected to stay near its current size for several years. Meanwhile, one of their equity portfolio managers sees healthcare drawing renewed attention from lawmakers. A second equity portfolio manager expects an economy sturdy enough to absorb the political noise, with resilient jobs, solid corporate profits, and steady consumer spending. As Capital Group’s election research has shown before, election results rarely drive long-term investment outcomes. Thursday was a reminder of how sharply the short term can whipsaw.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
J.P. Morgan Asset Management:
Capital Group:
Argus:
First Trust:
Invesco:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
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