There were no surprises with last week’s mid-term elections as the Democrats took the House and the Republicans held their Senate majority.
Gridlock in Washington, D.C., hasn’t historically been a hurdle for investors. This split Congress likely means there will be no further tax cuts and there could be increased tensions around the debt ceiling.
The Federal Reserve (Fed), our nation’s central bank, left interest rates unchanged last week as was widely expected. We believe the Fed will increase short-term interest rates at its December meeting, which would be the fourth increase in 2018.
Fed Chair Jerome Powell will be speaking twice this week, and he may give some clues as to how quickly the Fed might raise rates in 2019. The market is pricing in about two hikes in 2019, but the Fed has previously signaled three hikes are possible.
Earnings season is about 90% complete and the results have been strong with 82% of large companies reporting better-than-expected earnings according to Bloomberg. Additionally, compared to the same time last year, earnings are nearly 27% higher on average and sales have grown 8.4% on average.
What does have some on Wall Street concerned is that a few larger companies, such as Amazon, have reduced their future earnings outlook. While lower future earnings are something to watch closely, it should be noted that the data suggests earnings will still be growing but just not as quickly as they had been.
Oil slipped into a “bear market” last week with prices dropping from about $76 to $60 a barrel. OPEC (Organization of Petroleum Exporting Countries) and Russia had been increasing output over the past five months. Now Saudi Arabia has said they will cut production, but there isn't a consensus view on production cuts from the rest of OPEC yet.
Meanwhile, U.S. output has surged to record highs, and it's about double what it was six years ago. As a result, gasoline prices are at their lowest level since April – an average of $2.70/gallon across the country according to AAA.
The Simply Money Point
With mid-term elections over, Wall Street will turn its attention back to the economy, the Fed, and the trade war with China. The data we analyze every day at Simply Money Advisors continues to show a low risk of recession over the next six to nine months, but economists believe the rapid economic growth enjoyed over the past six months will moderate to around 2-3% in 2019.