Stock Market Lacks Direction!

2022 MIDTERM ELECTIONS: Stock Market Lacks Direction!

Red wave or no wave at all, the race in the Senate is too close to call. We knew it would be a nail-biter, but hardly anyone expected a literal tie in the U.S. Senate. Now, the financial markets are struggling just to make sense of it all, not to mention achieve price discovery in stocks.

When there’s no price discovery to be found, short-term emotions take control of asset prices and the stock market becomes unpredictable and frustrating. A divided government and at least two years of gridlock in Washington are the inevitable outcomes, it seems, of a deeply divided pool of voters.

The House of Representatives appears to be in a red wave, and while the Republicans haven’t officially pulled out a majority victory yet, it’s highly unlikely that the Democrats can take control of the House at this late stage of the game:

Numerically speaking, some pundits might call it a “slim” majority for the Republicans in the House. However, the map shows the depth and extent of the red wave of 2022.

The real photo finish was in the Senate, though, with each party holding 48 seats. If there are votes that end up going down party lines, the tiebreaker will be Vice President Kamala Harris.

As far as the states’ gubernatorial races are concerned, 23 of them have gone to Democrats and 25 have gone to Republicans so far. All in all, there was an increase in red states throughout the midterm elections, but perhaps not as decisively as some political gurus had forecast.

Financial market traders are finally coming to grips with an extended period of gridlock and partisan clashes. Until the seats are handed over to the winners, however, it’s business as usual on Capitol Hill as the Democrats in congress scramble to raise the national debt limit despite fierce conservative opposition.

Objections to raising the debt ceiling are based largely on the notion that taxing, spending, and sky-high debt are what got the country into this inflationary mess in the first place. The 118th Congress doesn’t start until January, so expect an uptick in political posturing and wrangling, along with any number of “reconciliation bills.”

The net effect seems to be an easing of the dollar, something the financial markets have been awaiting for quite a while. After all, besides increasing bond yields, the main driver of lower stock, gold, and silver prices in 2022 has been the U.S. dollar’s strength.

A dollar correction has enabled gold to approach $1,800, silver to break above $22, and the S&P 500 to retake 4,000. This doesn’t mean that the markets have actually chosen a direction yet, though.

Traders will need to see how gridlock impacts the nation’s ability to deal with “sticky” inflation and move its supply chains faster. Investors will closely watch for the Federal Reserve’s next move in December.

So, there should be a couple of weeks to enjoy your Thanksgiving holiday season as the market flops around but goes nowhere fast. That’s the time to put together your shopping list; soon enough your finances can be in harmony even if the government isn’t.