Risk Assets Rise as Midterm Elections Wrap Up

Equities Celebrate End of Midterm Election Uncertainty

There were a number of notable themes to emerge from yesterday’s election results ,which ultimately led to a split Congress as financial markets had anticipated:

• Democrats seized control of the House of Representatives – will now have a 9-seat advantage

• Republicans expanded their majority in the Senate – went from a 2-seat to 6-seat advantage

• A record number of women were elected to the House – at least 89

• The first two Muslim women were elected to the House – Rashida Tlaib (Michigan) & Ilhan Omar (Minnesota)

• Election interference did not appear to be prevalent

• President Trump referred to the results as a “Big Victory”

 

 

Today US stock markets celebrated the lifting of the cloud of uncertainty that had been the midterm elections, as all three major indices finished with gains of more than 2%. This move was led overall by gains in the tech and healthcare sectors.  US Treasurys started the session with a rally, pushing yields/swap rates as many as 4bps lower across the curve, before paring those gains and ultimately finishing with bond prices falling/yields rising into the close.  The yield on the 2-year note settled 3bps higher to 2.96% – its highest level recorded in the past decade.  The US dollar settled marginally lower against major currencies as markets assessed the impact of gridlock in Congress.

 

Crude Can’t Stop Falling

Crude oil extended its selloff to eight consecutive days as WTI futures dropped an additional 1% today to $61.65/barrel – its lowest level since March.  A report from the US Energy Information Administration assisted in driving crude oil prices lower, as a 5.8 million-barrel build in stockpiles was recorded last week.  It was the seventh straight week of a reported increase in inventories, while daily production totaled a record high of 11.6 million barrels per day.

 

 

With midterm elections now in the rearview mirror, financial markets will turn their focus to the Fed meeting set to conclude tomorrow.  While there remains a marginal chance (< 14% as per Fed funds futures) of a rate hike announcement, market participants are more likely to gain insight as to future policy actions from the statement released after the meeting.  Tomorrow’s meeting is also notable in that it will be the last FOMC meeting without a post-meeting press conference — a change in protocol initiated by Fed Chair Jerome Powell.