Daily Market Color

Financial Markets Mixed Ahead of Midterm Elections, Iran Sanctions


Stocks Mixed to Open Week

Major US equity indices were mixed on the day as strength in the financial and energy sectors helped to offset a slide in technology stocks.  The DJIA (+0.76%) and S&P 500 (+0.56%) posted modest gains while the Nasdaq finished 0.38% in the red, heavily weighed down by a 2.8% drop in shares of Apple.  Overall, investors displayed a sense of caution ahead of tomorrow’s midterms elections, where probabilities currently point towards a split Congress – a result that would make it more difficult for the Trump administration to push through its policy agenda.  US Treasurys saw a mild rally, with yields/swap rates falling 1-3 bps across the curve, pushing the yield on the 10-year note to 3.20%.  The US dollar lost 0.2% against major currencies ahead of the election, declining from its highest level since June 2017 reached last week.  



Iran Sanctions Commence

Today the US officially (re)instated a number of sanctions against Iran, specifically targeting the nation’s oil, banking, and industrial sectors.  The move effectively restores and strengthens the measures that were in place prior to the Joint Comprehensive Plan of Action (Iran nuclear deal) of 2015, with the intention to restrict Tehren’s nuclear missile program and reduce the Islamic Republic’s impact in the Middle East.  “The Iranian regime has a choice: it can either do a 180-degree turn from its outlaw course of action and act like a normal country, or it can see its economy crumble,” U.S. Secretary of State Mike Pompeo announced publicly this morning.  It was also determined that eight nations would receive waivers from the sanctions to allow temporary imports of Iranian oil: China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey.  Crude oil prices held within a tight range throughout the day, managing to slow last week’s selloff which saw futures tumble by more than 6%.  WTI crude settled near $63.10/barrel.



The Week Ahead

Aside from midterm elections, financial markets will be looking forward to the Fed’s November meeting set to take place on Wednesday & Thursday.  While there remains a marginal chance (< 7% as per Fed funds futures) of a rate hike, market participants will be closely monitoring the statement after the meeting concludes for any hint of future policy hesitation, given the recent surge in market volatility.  Fed members who made public comments last week were unified in their message that their decision and future plans would remain independent of the recent equity selloff or Presidential jawboning.  Friday’s robust October employment report provided support for the Committee’s plans to continue with a gradual hiking pace through the end of this year and into early 2019.  


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