Split Congress & Seasonality - both Bullish.
Macro Perspectives
About a fifth of the companies in the S&P 500 have reported on Q3 earnings thus far.
Over seventy-percent have beat earnings estimates, and about seventy-percent have beat revenue estimates. And despite the hot inflation, profit margins remain healthy at 12% - above the 5-year average.
These are reports from a quarter that the Atlanta Fed's GDP model is now projecting to have grown by an annual rate of almost 3% (that's AFTER effects of inflation).
Again, as we anticipated coming into these earnings, the fundamentals don't match the performance of the financial markets. The fear is outweighing the facts.
On that note, no one has introduced more fear into markets over the past seven months than the Fed. Whom we will next hear from on November 2. But the bigger event for markets, and the economy, by far, comes in two weeks - the midterm elections.
A Democrat White House and Democrat controlled Congress has led to executing of the full Democrat agenda, despite the fiscal and inflationary consequences. On November 8th, we should get at least a split Congress. This will bring gridlock, which will bring stability and certainty to the fiscal outlook. That's historically good for stocks.
In fact, post-midterm elections, regardless of the outcome, are historically good for stocks.
Bancorp did a study on this: Looking back to 1962, stocks (S&P 500) in the 12-months following a midterm election had an average return of 16%. That's double the long-term average return. And over these fifteen data points observed (over 60 years), ALL had positive stock market performance for the twelve-month period following the midterm election.
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