What a mess Thursday was. The market went into a tailspin from the Institute for Supply Management (ISM)’s weak manufacturing data more than the Apple’s news, which is correct, but the selling based on both news sources was excessive.
I’m concerned about the recent spate of less-than-expected data on manufacturing, but these reactions aren’t rationalized. Be that as it may, the market has to adjust to slower growth, which isn’t the same as adjusting for a recession. This morning, we should be rooting for great news from the government job report.
S&P 500 Index
Communication Services (XLC)
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
Pelosi in the House
I try not to make everything about politics, but lots of smart people I talk to think the outcome of the midterms cast a pall over the stock market, adding to its woes. I will say the market seemed fine with the outcome and the notion that the worst-case scenario would be a Washington, D.C. gridlock.
Then the vitriol started and talks about impeachment, more investigations, and even deeper resistance to the Trump economic agenda began to take a toll.
In late October, the Dow and other major indices were trying to stage a rebound. The Dow rallied from 24,583 on October 24th to 25,635 on election day. Two days of post-election niceties saw the index edged higher to 26,191 at the close on November 8th. It hasn’t been that high since then.
Dow Jones Industrial Average October 25, 2018, to Jan 3, 2019
I don’t think the shutdown is an economic or stock market problem, but I do think the threat of an all-out war on Capitol Hill is worrisome when there are additional issues with the market. Nancy Pelosi is walking a tightrope, understanding Democrats can overplay their hand with impeachment talk, especially when it’s about supposed campaign finance violations.
I will say Nancy Pelosi has made a couple of moves on her first day that give me a glimmer of hope for legislation, not more investigations. She’s not going to empower the young Democrats to declare war on the opposition, and she is promoting ‘pay as you go’ or ‘pay-go’, which makes it much harder for the socialist goals in most Democrats’ 2020 dreams:
- Medicare for All
- Green New Deal
- Free College Tuition
- Guaranteed Jobs
Ironically, Wall Street mavens and conservative economists are rooting for a divided government and gridlock to stop projects that seem like no-brainers for Pelosi & Trump on things such as infrastructure spending, drug price limits, and other pricey programs that would trigger short-term financial gains but cause more debt and limited industrial innovation.
My final thoughts on the shutdown. I hope we don’t get another Continuing Resolution (CR) with a fresh deadline of early February that Speaker Pelosi is offering. In fact, the so-called CR has been the worst tool of compromise ever devised on Capitol Hill. Nothing of substance has gotten done with this ultimate ability to kick the can down the road in perpetuity.