“As societies grow decadent, the language grows decadent, too. Words are used to disguise, not to illuminate, action: you liberate a city by destroying it, Words are to confuse, so at election time people will solemnly vote against their interests.” – Gore Vidal
* Conventional and consensus wisdom – regarding the election outcome – was confirmed last night
* The end of one man’s rule (Trump), without any restraint, is now over
* Democratic marquee candidates disappointed and the Republicans were rewarded with a larger than expected Senate majority
* The Democratic House win comes with powerful committee ownership – for the first time in two years the Administration will now have a check against their agenda
* Even more volatility and uncertainty lies ahead
* I am now (opportunistically and in premarket trading) adding to my short book
Thus far, the stock market’s immediate response to the split decision last night is upbeat – with S&P futures +26 handles at 5:25 a.m. For now this is affirmation of the notion that gridlock is market friendly – but that can change on short notice!
Adjusted for the futures rise, the S&P Index is now slightly above my projected 3-6 month range.
With risk v. reward now stretched, I am shorting S&P futures at an equivalent of $287.20 in the premarket.
Some Brief Observations:
1) The ugliness of the political scene over the last two years is likely to get more ugly. Though Trump will likely be emboldened – there is now a fundamental difference and divide from the recent past (“checks and balances”). The President no longer has a subservient (Republican) House to deal with anymore – the new (Democratic) House is in marked opposition to his agenda. The President will continue to argue that he is at the epicenter of power (see his tweet of a few minutes ago, below) – he no longer is.
Donald J. Trump @realDonaldTrump
.@DavidAsmanfox “How do the Democrats respond to this? Think of how his position with Republicans improves-all the candidates who won tonight. They realize how important he is because of what he did in campaigning for them. They owe him their political career.” Thanks, I agree!
Donald J. Trump @realDonaldTrump
Those that worked with me in this incredible Midterm Election, embracing certain policies and principles, did very well. Those that did not, say goodbye! Yesterday was such a very Big Win, and all under the pressure of a Nasty and Hostile Media!
2) As we move towards 2020, the U.S. political scene is headed for a period of elevated animus (even more than we have seen in the past few months) between the Democratic and Republican parties. Whether it’s the affirmation/restoration of voting rights, gerrymandering, infrastructure, the border wall (and other immigration moves), healthcare, etc. – rhetoric will grow even more heated.
3) There will be more finger pointing and infighting between the Administration and the traditional Republican leadership (“Paul Ryan branch of Congress”) over the next few weeks.
4) There will likely be a host of White House Cabinet firings over the next few weeks. Some that are staying will be getting “lawyered up.”
5) In the lame duck session there will be plenty of fighting over the border wall and other Trump initiatives – it will get messy.
6) I suspect little administratively will be achieved over the next 12-18 months – as the end of one man’s rule (The President) is over.
7) The President now faces a hostile judicial and intelligence committees which will have subpoena power over the President.
8) While some industries like the financial sector seem, in theory, to be vulnerable to new committee leadership – I am uncertain as to whether any meaningful changes will be introduced.
9) The legitimacy of the Mueller investigation – a constant thorn in the President’s side – will likely be reinforced by the Democrats. (The political and other consequences are yet unknown).
10) The cast of Democratic Presidential hopefuls probably got even longer as a result of last night’s elections. Harris, Booker, Warren, Sanders and Biden – the preliminary early line favorites – will have a lot of company on the dais.
Bottom Line
After last night’s election, the political sands are likely shifting.
While I have a view of the market’s vulnerability from current levels based on economic, interest rate, etc. influences it is unclear (at least to me) how last night’s election split-decision results will impact the markets over the near term – despite the initial positive reaction overnight.
Gun to my head, I would say the probability that the early and favorable market response to last night’s split-decision will be short lived.
I believe, as in September, 2018, an overshoot to my expected trading range remains possible – I plan to short that overshoot, if it extends further.
While the only certainty is the lack of certainty, the period of a new regime of heightened volatility should continue and is likely to be a steady state through 2019.
In summary, more volatility and uncertainty lies ahead.
The markets will get harder, not easier, to navigate over the next six to 12 months.