By Matt Schreiber – WBI President and Chief Investment Strategist
Futures are trending positive this morning as mid-term elections resulted in the expected outcome of a Republican President and a split Congress. Historically, that has been one of the worst combinations for markets. See the chart below.
Since 1901, the Dow Jones Industrial Average is down 6% per year historically under this combination. The road forward is less certain with many risks on the horizon. The Federal Funds Rate has climbed 800% since the Fed began raising rates in 2015. This has caused trends in new housing starts and existing homes sales to weaken. Historically, a weakening trend in housing has been a precursor to a looming recession. In the short-term, strong corporate fundamentals indicate markets are likely to rise. A trade deal with China, which appears likely to occur later this month, could also rally the market. Corporate fundamentals and the economy are expected to stay strong giving the Fed plenty of cover to continue to raise rates until it is too late and the rise causes a dramatic slow-down in the economy.
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