KINGSTON, NY, 7 NOVEMBER 2018—Contrary to months of media hype, this midterm election in the United States was just average. There was no "Blue Wave" of Democrats sweeping both chambers of Congress.
In fact, since 1862, the presidential party in power has lost, as they have in this election, an average of 32 House seats.
After yesterday's midterms, will U.S. equity markets follow the 72-year trend line?
Since 1946, regardless of which party won, U.S. stocks were higher 12 months after every single one. And in the year following the midterm election, stocks rose an average of 17 percent.
But that was then, and this is now.
In this, the Global Age, a whole new world order that is more integrated and interdependent than any time in history, other factors will determine how the U.S., as well as global markets, will perform in the months and year ahead.
While the expected gridlock in Congress may slow President Trump from enacting future corporate-friendly tax and other market-favorable initiatives, these three factors will determine the U.S. and global equities futures: Interest rates, oil prices and earnings… not tariffs and trade wars as the business media contends.
On the interest rate front, President Trump has made it crystal clear that he does not want the Federal Reserve to aggressively raise them, since each time they go up equity and real estate markets decline … and not only in the U.S.
On the global level, as we had long noted, with some $250 trillion in global debt, much of it dollar based, as the dollar grows stronger and global currencies get weaker, the cost burden of servicing that debt grows heavier.
Subsequently, economies worldwide, and their equity markets are slowing, stagnating and/or falling into recession.
As for oil, while Brent Crude is down over $10 from its 2018 high, at its high this year, it was up 27 percent per barrel from a year ago.
Oil prices are dollar based. As the dollar rises and currencies of countries weaken, the pressure of higher oil prices will push their economies and equity markets lower.
On the corporate earnings front, in the U.S., they have peaked following President Trump's generous $1.5 trillion tax breaks. As noted, with a divided Congress, it is unlikely that future equity market boosting measures will be enacted.
TREND FORECAST: Should the Federal Reserve continue to aggressively raise interest rates and should tensions increase in the Middle East and oil spikes above $100 per barrel, an Economic 9/11 will ensue.