Home About Archives RSS Feed

The Independent Investor: Mid-Term Results Take Investor Focus Off Washington

By Bill Schmick
iBerkshires columnist
True to form, the opposition party regained control of the House, while the ruling party, in this case the GOP, retained control of the Senate. If history is any guide, this means that little in the way of legislation will be coming out of Congress for the next two years.
 
In the past, investors and the stock market alike did better than you might expect under this kind of political paralysis. That's because financial markets abhor the unknown. Given the unpredictability of politics and legislation, investors are far more content with inaction than action, unless of course, those actions are favorable to the markets or the economy.
 
Take for example, the tax cut of 2018. That sent the markets higher because most investors expected the cut would fuel additional growth in the economy.  In turn, that would generate higher earnings for public companies and provide a reason to bid the stock market up even higher.
 
While expectations for any additional tax cuts over the next two years are remote, there could be some surprises. There is some conjecture that the Federal government could undo parts of the tax cut. They could reinstate, for example, the federal tax deductibility of those states with an income tax. In exchange, the corporate tax rate might be raised a few percentage points. Of course, it's early days and any quid pro quo negotiation on taxes between the two houses and the president could drag out until 2020. 
 
The unfolding disaster that is the Affordable Care Act (ACA) over the first two years of Republican rule was not lost on voters. Health care was identified as one of the greatest concerns among voters in exit polls across the nation. That doesn't mean that the legislatures will suddenly be able to come together and fix a health care system that has run amuck.
 
 If the GOP, which had control of the executive branch and both Houses of Congress, could not come up with a plan to replace the AFC, why would we expect a divided Congress to do any better? At most, we may see drug pricing initiatives, but the passage of even that effort is doubtful.
 
The common wisdom of most political pundits is that the Democrats will launch investigation after investigation into the perceived wrong-doings of the president, his cabinet members, and anyone else they can target among the GOP. As a result, no one in power will have the time or energy to contemplate any new legislation. Most of their efforts will be tied up in defending themselves.
 
One area that might see the light of day might be infrastructure spending. Both parties have been talking about that since the early days of the Obama Administration. At that time, Republicans considered themselves deficit hawks and did not want to spend the money necessary to fund a multi-trillion-dollar spending program.
 
Today, however, Republicans, with few exceptions, have taken on the mantle of big government spenders. Democrats, at least since the days of Franklin Roosevelt and the New Deal, have always been saddled with that reputation. It is conceivable that enough elements of both parties could see their way into a compromise infrastructure spending bill. The caveat here is that the deficit itself could become an explosive issue next year as interest rates (and debt payments) continue to rise. In which case, neither party may be willing to add to the nation's debt for any reason.
 
In my opinion, the direction of the stock market will be far more dependent on how fast and how high-interest rates will rise. The outcome depends on the Federal Reserve Bank and not politicians in Washington, D.C.
 
There is one worry, however, that does continue to haunt the markets. President Trump's on-going trade war could ultimately sink both the economy and the stock market. The Democrats in the past, having been no friend of free trade, believe strongly that America has not been treated fairly by our trading partners. Given that the president and the Democrats may see eye-to-eye on this issue, it may embolden Trump to escalate his tariffs and other demands on our trading partners.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 
0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Cheshire Still Seeking Right Fiscal Equation For Elementary School
Clarksburg/Stamford Merger Committee to Select Coordinator
Williamstown Declines to Say Whether U.S. Attorney Sought Pot Agreement
MCLA Women Win Home Opener
Hinds Sets Community Outreach Events for November
Coalition Tackles Vaping, Alcohol Use in Community
Pittsfield Continues Tax Classification Hearing Over Free Cash
Mount Greylock School Committee OKs Multipurpose Building
North Adams Council Puts Brakes on Sale of Sullivan School
Municipal Briefs: North Adams Launches Food Drive

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (308)
Independent Investor (419)
Archives:
November 2019 (3)
November 2018 (6)
October 2019 (9)
September 2019 (7)
August 2019 (5)
July 2019 (5)
June 2019 (8)
May 2019 (10)
April 2019 (7)
March 2019 (7)
February 2019 (6)
January 2019 (6)
December 2018 (4)
Tags:
Stocks Energy Banks Jobs Recession Election Rally Oil Debt Greece Interest Rates Retirement Pullback Stimulus Stock Market Markets Fiscal Cliff Currency Deficit Federal Reserve Economy Crisis Debt Ceiling Commodities Selloff Bailout Taxes Congress Euro Wall Street Japan Europe Europe Metals Housing
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Phase One Deal Keeps Markets Bullish
The Independent Investor: Fringe Benefits Important as Paycheck
@theMarket: Will Record Highs Beget Record Highs?
The Independent Investor: NCAA Up Against Ropes on College Pay for Athletes
@theMarket: Earnings Give Mixed Signals
The Independent Investor: Will Trump Ruin Thanksgiving?
@theMarket: Markets Await a Brexit Vote
The Independent Investor: Was There Really a Trade Deal?
@theMarket: Stocks Soar on 'Skinny' Deal
The Independent Investor: Brokerage Business Not What It Used to Be