Despite a better start to the month post “Red October”, uncertainty remains surrounding the global equity environment. Wall Street finished last week on a poor note and took that mood into Monday, passing the blues to the rest of global equity prices. Bond prices rallied as investors looked for safe havens. Technology shares, for so much of the year the darling for investors once again finding selling pressure. Concerns that Apple iPhone sales may be stalling post comments from a supplier adding to the gloom. There does appear to be something of a consensus view developing that the correction we recently have had, has not been severe enough and also, unnerving as it is difficult to justify as the fundamentals remain intact.
The mid-term elections are now out of the way leading to a relief rally in US stocks on Wednesday, however, the week ended badly as technology and commodity stocks sold off. This did not prevent all three major US equity indexes finishing the week again in the blue. Now it’s back to focus on global growth, trade wars and US monetary policy. One piece of economic data at the end of the week, China’s latest import-export data for October came in better than expectations despite the ongoing trade war. The meeting of the Federal Reserve this week left investors with the almost certain confirmation that they will raise interest rates in December.
Many people may not like Trump, but they do appear to be respecting what he is achieving as President. We had a Trump stock market bump post his election and the result of the midterm elections gave equity investors another boost. The result itself, was for a change, correctly predicted by opinion polls. The Times on Thursday suggested the results were so positive for the Trump camp that he may get another four years in the job. Two areas the Democrats and the Republicans agree on are infrastructure spend and further reforming the tax system. Both could further boost the economy. The area of concern if the Democrats fail to approve the increase in the debt ceiling. This could lead to an extended government shut down. However, would the Democrats really want to the catalyst for this event? Not so sure. Alongside could the Democrats push further again to impeach Trump? Economies often do better if governments leave well alone if the result in the mid-terms does provide something of a gridlock that may not ultimately impact the US economy in a material way.
The mid-term elections are now upon us and the results will be known early Wednesday morning. The only result that is predicted to create some market volatility is if the Democrats took control of both houses, but that looks unlikely.
The Bulls fought back last week as equity markets around the globe, particularly those in Asia, rose. The S&P 500 gaining 2.5% on the week, as did the FTSE 100. The pound recovered towards the end of the week on hopes that we are coming closer to a Brexit deal. Chinese equities rallied sharply on Friday, having had a very torrid year after Donald Trump offered something of an olive branch on trade negotiations. The Vix index closed the week below 20, and mid-cap stocks outperformed larger ones. Fortunes for the S&P 500 did a reverse on Friday as strong employment and earnings data led to a rise in bond yields. Equity investors don’t like uncertainty and after such a strong couple of years have now to decide what impact they think the combination of a slowing economic growth, partly as a result of trade tensions, alongside rising US interest rates, will have on company earnings.