We've Got a Split Congress! What Does that Mean for the Markets?

2018-11-08 | Alexis Brown

After her appearance on Boom Bust last week, Danielle Shay Gum is back! This time she talks alongside John Grace, Founder and President of Investor’s Advantage Corporation, about midterm elections, predictions, and what this may mean for the markets.

Will Democrats gain control of the House? Or the Senate? Or both? Or will things remain the same with Republicans controlling both branches of Congress?

Now we know what happened. Democrats gained control of the House, and not only did Republicans maintain control of the Senate — they actually picked up a few seats.

So now that things have played out what does this mean for the markets? Danielle took the time to add some commentary on the topic starting with the history.

On a historical basis, the S&Ps typically trade higher after midterms — in years with a split Congress, they historically perform better than years with one party controlling Congress. Of course, this matter is complicated because now Trump WILL face gridlock when attempting to pass measures. She imagines the Trump rally will stall, as more political turmoil will certainly take place. Furthermore, she highly doubts Democrats will be interested in working with Trump. Don’t be surprised if in the next two years we face a lot of angry tweets and presidential tantrums that undoubtedly will affect the market.

Get ready for some volatility.

However, does a split Congress mean the end of the bull market? Yesterday, bulls were strong and trying to breach overhead resistance that appeared during the correction. Does this mean the downtrend is over? Well, this could be the catalyst to break resistance, but it all depends on the follow through and IF our relative performers can continue higher from here. 2800 in the S&P futures is a key level. Yesterday, we were sitting directly beneath that level. The best option for traders here is to stick with ‘best in breed’ stocks.

What are those? Those are stocks that are showing relative strength in this market. Her favorite? MSFT. She also loves V. Think about all the purchases people make on AMZN… they need to use credit cards there. MA is the same. We aren’t out of the woods to the downside yet, but trading this rally higher in names with relative strength is the way to go. If you’re looking at sectors, she still likes health care — she plans to buy some PFE and XLV.

One thing is for certain, now that midterms are over, there is clarity and certainty. We know Congress is split. No one is watching and waiting anymore. Uncertainty fuels volatility. So? Danielle suggests being very nimble. Additionally, look out for a possible Santa rally on a break of overhead resistance, and stick with best in breed longs or trend following shorts.

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