It’s good to see you again, readers. Phil Rosen here. After three weeks in Europe, I’m happy to be back reporting from Manhattan, jetlag and all.
Global markets haven’t exactly behaved themselves in my absence.
So far this month, British bonds have stolen headlines by being as tame as toddlers on a trampoline (that is, not tame whatsoever), and the UK has just appointed its latest leader to No. 10 Downing Street, who happens to have ties to Wall Street.
Meanwhile, a myriad of issues weigh on China’s economic outlook as President Xi locks in a third term.
And things haven’t exactly been smooth here in the states either — the housing market is faltering, the odds of a Fed policy mistake are increasing, and decades-high inflation is sticking around like a bad habit.
All that, plus there’s the fast-approaching midterm elections that hold plenty more implications for investors.
Lots of moving parts today. Try not to blink.
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1. Historically, stocks shoot higher after midterm elections. That’s because midterms often result in political gridlock, which prevents big policy swings or abrupt changes.
“Markets tend to like it when nothing can get done [in Congress] because there’s less chance of increased regulation or higher taxes, and it’s harder to pass legislation that could drag the economy down,” Gene Goldman, chief investment officer at Cetera Financial Group, told me last night.
Markets will be volatile for the rest of the year, he added, but if midterms do yield more political stalemate, there’s a good chance stocks bounce higher.
Basically, the market usually reacts to midterms well because they are predictable in the sense that politicians can’t make radical legislative changes. Stocks often jump when they know what to expect, which in this case is nothing much.
“Markets love a mixed-party government because nothing gets accomplished,” Goldman said.
But BlackRock warned Monday that the Fed’s aggressive rate hikes are likely to throw cold water on any potential market rally, Insider’s Jennifer Sor writes.
A recession and looming economic turmoil, the asset manager said, will drag on stocks to a greater extent than midterms could spark a rebound.
With inflation as high as it is, the Fed isn’t in a position to slow down its aggressive rate hikes. That means the trajectory policymakers set will outweigh anything voters could do on November 8.
“The Fed is responding to the politics of inflation, or the pressure to tame it,” BlackRock’s analysts said. “All of this outweighs any expected boost for stocks after the midterms, in our view.”
In other news:
2. US stock futures fall early Tuesday, ahead of policy meetings by the European Central Bank and Federal Reserve. Meanwhile, the head of the IEA said the world is in the middle of “the first truly global energy crisis.” Here are the latest market moves.
3. Tech on deck: Microsoft Corp., Alphabet, and Twitter, all reporting.
4. An extremely reliable recession indicator just signaled a downturn is coming. The top portfolio manager at a $232 billion firm broke down what that means for stocks and investors — and shared two sectors he thinks will carry the market out of a bottom.
5. Attention stock market investors: The Fed could keep rates elevated for up to a year. That’s according to Wells Fargo’s chief macro strategist — and he thinks it’s going to weigh on stocks. While investors have been obsessed with how big upcoming rate hikes may be, it’s the destination that’s more important than the journey. And in this case, the destination is rates at higher for longer.
6. The current housing market decline has a key difference from the 2008 crash. While loose lending practices fueled the last crisis, this time around, housing is facing a different set of issues. One big one? Underinvestment in the sector. Here’s what you want to know.
7. There’s a chance a bull market could be just around the corner, as a strong performance by cyclical stocks have been performing well compared to the downbeat S&P 500, Leuthold Group’s Jim Paulsen said. In his view, a rally might be looming because names that are usually most sensitive to the economy have held up surprisingly well.
8. A financially independent real estate investor bought six of his 25 properties from a turnkey provider. Now he’s able to see at least $250 per month from each one, and his strategy has allowed him to do less work despite the higher upfront costs. He broke down why he sees turnkey properties as worthwhile investments.
9. Goldman Sachs detailed how to invest in each stock-market sector to best protect your portfolio from inflation and higher interest rates. Analysts said health care and consumer staples exhibit “relatively low vulnerability to the risk of higher real interest rates.” The firm’s experts also shared how to cash in on the remaining upside.
10. Alibaba cratered to its lowest mark in six years. Other US-listed Chinese shares like Nio and Baidu also sold off Monday. Now, investors are “running for the exits” as China’s leader gets a third terms and packs his core team with party loyalists.
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