Stay Focused!

Stay focused!  Focus is the name of the game on this morning of mid term elections.  It’s hard to think that the only game in town is the election that will happen today… but it’s not.  To be clear, elections are extremely important and everyone should get out and vote.  But what will the results of, what is being billed in the media and by politicians as, the most important election of a generation (it’s true, I can’t make this stuff up) have on the markets?  Probably nothing… long term that is.  A big part of daily stock market movement is certainly driven by investor sentiment. Sentiment is a complicated factor because it is really hard to quantify, and for a quant like me it can be rather frustrating.  But on a high level we know that when investors are feeling good markets tend to move in a more positive direction and vice versa.

I would like to add one small addition to the good / bad mood scenario: anxious.  According to Mirriam-Webster, the definition of anxious is: “characterized by extreme uneasiness of mind or brooding fear about some contingency.”  So when investors are anxious, markets are volatile.  In many of my daily notes I write that markets don’t like surprises and unknowns.  It seems that everyone is uneasy about politics these days, no matter who you vote for or what party, if any, you subscribe to.  Many politicians are using fear to influence voters and the media is amplifying the fear by covering them in a dramatic way.  All of this anxiety, even felt by professional investors, has definitely injected a significant amount of volatility into markets.  Once the results are out, more anxiety and volatility. Again, the big question is what does this mean to my portfolio?  Let’s take a step back and remember how we got here, in the markets that is.  Job growth, favorable taxes, strong corporate earnings, and a strong economy.  Our economy has been expanding since July of 2009 and has even sped up in the past 18 months.  S&P earnings have grown over 20% year over year over the last few quarters.  Unemployment is at almost historical lows.  Do I need to go on?  Those are the things, along with investment objectives, that we as investors need to focus on when making investment decisions.  Of course we need to pay attention to legislation and Washington DC, but only if it has long term impacts on the US Economy, Industry, or individual companies.  Now, not all anxiety is to be put aside.

Anxiety over interest rates, tariff’s impacts on companies, corporate health/earnings, and interest rates is very real and they do impact the performance of markets. Yesterday, markets were focused on the important things.  Markets traded mixed but generally up in response to positive trade overtures from China, stock buyback announcements, and strong earnings.  The NASDAQ was held back by Apple, which continued to experience selling as a result of their bad earnings guidance.  Rational!  By 10 PM eastern tonight we will know the results of today’s election and those results, whatever they may be, will surely cause volatility brought on by, of course, the unknown of what new faces in Congress will mean.  Hopefully it will be short-lived and investors will be able to start to focus on the important things again.

Speaking of the important things, we have a number of earnings releases pre-market and throughout the day.  Amongst them are a number of companies in the Healthcare sector, which has been a strong performer this year so far.  The Bureau of Labor Statistics will release its Lob Opening and Labor Turnover (JOLTS) report, which details job openings across industries.  Last month the BLS reported that there were 7.136 million openings, which is a high water mark, and this month they are expected to report 7.085 million openings.  Both represent a strong and tightening labor market, which is important.  Also today, the Treasury will auction off $27 billion in ten year notes, which is also important as the amount of outstanding government debt has been growing at an increasing pace.  Finally, tomorrow the FOMC will start a two day meeting to discuss and vote on interest rate policy.  They are largely expected to keep short term rates unchanged, which is important.  Longer term interest rates, determined by the market, are around 3.19% up about 5 basis points from a week ago, which is important as well.  In these anxiety filled times, you should work closely with your advisor and stay focused on your long term financial goals and make sure that your portfolios are diversified and match your specific risk tolerance.  That is most important!

daily chartbook 2018-11-06