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The “What Next’s” Posed by Midterm Elections and Rate Hikes | LPL Financial Market Signals Podcast

September 24, 2018

LPL Financial research strategists, John Lynch and Ryan Detrick, discuss the potential effects of midterm elections, recent rate hikes, and other events on investors and the economy.

The average real effective federal funds rate going back to the 60s before a recession was 4.5%. Now we’re still at zero, that indicates the Fed is far from over-tightening.

- Ryan Detrick - Senior Market Strategist at LPL Financial

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What happens if Republicans lose control of Congress this November? It’s a question on the minds of many—including investors—and one of the topics discussed in this week’s podcast.

LPL Research strategist, Ryan Detrick, notes that this is a midterm year, and midterm years can be volatile. The good news is the fourth quarter of a midterm year and the first two quarters of the following year (pre-election year) have been some of the most bullish quarters for stocks over four-year presidential cycles.

With the overall economy continuing to impress, this all bodes well for continued equity gains. Most Washington insiders are looking for a split Congress. Historically, this is the most bullish scenario for stocks.

There is also the expectation that the Federal Reserve Bank (Fed) will hike rates for the eighth time this cycle. Is the Fed close to over-tightening? Many think it could be, but there are many signs that suggest this economic cycle could have plenty of life left in it.

And what happens now that the Dow finally made new highs? What about emerging markets, which have bounced big time the past two weeks?  Listen to the podcast to hear what LPL analysts, John Lynch and Ryan Detrick, think the answers could be.

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Historically, stocks tend to do quite well under a split Congress. This is the most likely scenario this November, so it could bode well for equities. Remember, gridlock can be good when it comes to stocks.

 

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The upcoming three quarters are some of the best out of the entire four-year Presidential cycle.

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