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How Much of Today’s Volatility is the Result of the Election?

How much of today’s volatility is the result of the election?  Many times I have opined the averages decline 5% to 20% in a midterm because of uncertainty.  If one is to believe the polls, there will be a change of power in the Senate.

Many times leading into the 2012 election, I opined the election could be one of tectonic proportions, further stating Governor Romney would be the next President; a repudiation of the President’s progressive policies.  If traditional voting demographics held true, there would be forty five presidents not forty four.

It is often stated a stop clock is right two times a day.

Similar to current polls, I too think there will be a change of power in the Senate.  However I think the odds are around 60% November can be an election of historical proportions and the outcome of 2012 was indeed tectonic as that outcome cemented the environment of today….one of total repudiation of an extremely progressive agenda, an agenda that may not be resurrected for many years.

Based upon a recent ABC News Poll, the President’s approval rating is 39% the same as the President’s credibility ratings, a record low credibility rating for any president at a midterm.  All must be remembered the President was largely reelected on his likeability and credibility and his ability to mobilize the Hispanics, unmarried women and the youth.

This coalition has been shattered. There are ample stories where many candidates do not wish to campaign with the President.

The proverbial swing voters or independents approval rating is at a career low of 33% versus 52% in 2012.

Only twenty percent of Americans “strongly” approve of his job performance while 39% “strongly disapprove”

During the 2006 midterms, an election that witnessed a total change of power in Washington, the incumbent had a 40% approval ratings and a 54% credibility rating.

I will argue Americans are smart, recognizing ISIL or the Ukraine is the greatest national security threat not global warming.  Benghazi, IRS, VA, etc. all have elements of a scandal where the White House is involved.  Obamacare.

And now Ebola where the Administration is determined to have no change in travel policy where the President banned travel to Tel Aviv because one rocket landed at the out skirts of its airport.

A recent Gallup Poll confirmed all of the above further stating the Administration’s progressive agenda of minimum wage, women rights and global warming are the lowest concerns amongst voters.

Perhaps most damning is the prevailing view in the absence of good, evil will prevail.  Unifying leadership is demanded.

What does this political rant have to do with the markets?  Everything.

At yesterday’s market opening, all thought the averages would be crushed.  Can it be argued a combination of oversold conditions that created attractive valuations, strong profits, a benign interest rate environment, rising pessimism amplified by rising optimism of a power change in Washington boosted stocks?


In the introductory paragraph I wrote the markets historically decline 5% to 20% during a midterm election session because of uncertainty.  Historically prices rebound once there is some electoral clarity, a rebound led by the sectors that have been crushed.

The Russell 2000 has outperformed the last five days, rising 1.67% for the period versus a 3.39% five day decline for the S & P.  As widely discussed the Russell 2000 was crushed from July-early October.  It was about 5-7 days ago a consensus was forming there could be change yet again in Washington.

Perhaps the saying “it is never different, there are just different people” is appropriate.

Last night the foreign markets were up.  London was up 0.79%, Paris up 1.78% and Frankfurt up 1.57%.  Japan was down 1.40% and Hang Sang up 0.53%.

The Dow should open considerably higher on continued stimulus optimism, strong earnings, dour mood and oversold conditions.   FRB Chair Yellen speaks this morning about income inequality.  Will she mention recent vaoltility? The 10-year is off 3/32 to yield 2.17%.


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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.