Week of November 10, 2014
And the Winner Is: Equity Markets
Americans headed to the polls last week and handed the Republican Party the five seats it needed to secure a majority in the Senate. The GOP expanded its lead in the House too. This is good news for the markets. Going back to 1964, U.S. equities have a perfect record of posting gains in the six months following mid-term elections, averaging an impressive 16.5%. This compares to a typical gain between November and April of just 3.7%. Markets accommodated history by advancing and finishing the week at all-time highs. On top of this, we also got the best possible outcome, financially speaking. Since the end of WWII, the best gains for markets have come from a sitting Democratic President and the GOP in full control on Capitol Hill (above 15%). The worst combination is a Republican President and split Congress. Where might the gains come? Defense companies are an obvious beneficiary of Republican control. Additionally, it is widely anticipated that the Keystone pipeline will now be approved by Congress, although it still faces legal challenges in Nebraska. This would benefit the energy sector, pipelines and infrastructure providers, perhaps at the expense of railways. A renewed Republican assault on Obamacare could aid medical device manufacturers as well by putting an end to the 2.3% tax levied on sales from these firms.
Super Mario To The Rescue
The European Central Bank’s (“ECB”) Mario Draghi stepped in front of cameras this week to announce unanimous support for the plan to inject $1.2 trillion of liquidity into the European economy and double the ECB’s balance sheet back toward 2012 levels. Following the comments, the Euro fell to a two-year low against the dollar, while equity indices rose slightly. The equity markets have been less than exuberant about Europe’s stimulus plans because the goal appears mathematically difficult to achieve given the limitations of the program. So far the ECB has only purchased covered debt and asset-backed securities, and many analysts posit the markets for these assets are not large enough to get the job done. Mr. Draghi did comment that buying government debt is an option, which would move the needle. It now just seems a matter of when (not if) the ECB follows in the footsteps of its U.S. and Japanese counterparts and begins purchasing sovereign debt.
A Goldilocks Jobs Report
Last Friday, the Labor Department reported U.S. employers added 214,000 jobs in October and the unemployment rate fell to 5.8%, down from 7.2% a year ago. Most economists were expecting a print north of 230,000. While the headline number was less than expected, the underlying data supports a good overall report. October marked the 46th consecutive month of job gains, and the ninth in a row above 200,000. The U6, a broader measure that includes under-employment, fell to 11.5%, the lowest level since 2008. And, the participation rate, while still hovering near three-decade lows jumped slightly to 62.8%. Additionally, the previous figures for August and September were revised higher, placing the average monthly gain for the past half year at approximately 235,000 jobs. All eyes are now on wage gains, which continue to grow roughly in line with inflation. However, hours worked and the employment to total population ratio continue improving, indicating wage growth may follow soon.
Fun Story of the Week
How much attention have you paid to the blitz of Apple advertisements since the introduction of the iPhone 6? Have you ever noticed the time displayed in print ads and television commercials is always 9:41? Few decisions at Apple are accidental, and this is no different. The company hosts highly-anticipated product unveilings events almost each year, and they usually start at 9 am near the Cupertino, California campus. The marketing team writes the speeches so the new product’s big reveal occurs roughly 40 minutes into the presentation when a picture of the new device is projected onto the screen with the current time. Steve Jobs unveiled the iPad in 2010 at 9:41, and this time has been used in all of Apple’s promotional material since. Prior to 2010, it was 9:42. That’s when Steve Jobs announced the very first iPhone in 2007.
Image Source: http://9to5mac.com/2014/09/22/apple-airs-new-iphone-6-ads-huge-and-cameras-featuring-jimmy-fallon-and-justin-timberlake/
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