It's a little early to become giddy but a year ahead of mid-term elections Wall Street was all abuzz at the possibilities (until the Fed stepped into the picture). In fact, stocks came out of the gate yesterday partying like it was 1994. That's right, there was a flashback to that fateful year that saw Republicans take control of Congress for the first time since 1952. What sparked all of this reminiscing? The elections on Tuesday were a shot across the bow of the White House that matched the screaming intensity of attendees of town hall meetings and tea parties this past summer. Nancy Pelosi said that the movement was AstroTurf, but I have to tell you I've played football on that stuff and it burns like you-know-what when you slide across it. If the massive shift in voter preference is indicative of what to expect next year it could be a bloodbath for the Democrats and the dawn of a massive multi-year rally for the stock market.
The number one song in 1994 was "The Sign" by Ace of Base; the lyrics of that song underscore the feeling among business and the stock market.
"I saw the sign and it opened up my eyes
I saw the sign
Life is demanding without understanding
I saw the sign and it opened up my eyes
I saw the sign"
Investors opened their eyes yesterday and saw the possibilities that maybe the power grab gets shot down, and if the mistakes Bill and Hillary made by not listening to the public happen again, next year could see sweeping changes in Congress. Going back to 1994, it saw the Republican revolution as the GOP gained a net 54 seats in the House and eight in the Senate. Prior to this shocking development were the 1993 elections that saw Republicans win mayors offices in Los Angeles and New York, and saw Christine Todd Whitman become governor of New Jersey. To explain how dramatic these developments were consider the following:
- First GOP majority on Congress since 1952
- The GOP control of 20 state legislatures most in 50 years
- Majority of governors' office first time since 1972
It's not just a campaign against big businesses but also the notion of free markets that have no ceilings on success or income. The attempt to yoke American businesses of all shapes and sizes in an attempt control wages and redistribute wealth is transparent and lethal. Like I said, we are a long way from 2010 mid-term elections and this week's election results could actually hasten the game plan, although these guys are already moving at the speed of light.
If you are an investor you must long for the days when gridlock came to Washington, DC as President Clinton's ambitious agenda was met with fresh face Republicans looking to change the world.
Current Angst Intensifying
The ISM Services report was a disappointment as employment actually declined unlike the same survey on manufacturing that enjoyed a massive increase. The decreasing jobs number mitigated growth in other areas where there is economic expansion. For some reason, ISM readings on the service economy aren't given the same credence as readings on manufacturing. This report ahead of Friday's employment data has added another layer of anxiety.
Then there's the Fed...
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." -Federal Reserve
I'm not sure whose inflation expectations the Fed is talking about because many smart people are gearing up for the mother of all inflation tsunamis. As for the "extended period" I think that we could be looking at the Fed holding rates at current levels into 2011. With that in mind, I've always said that the stock market is selfish as it will take advantage of low rates until you know what hits the proverbial fan. The Fed talked again about winding down a couple of programs but they aren't budging on rates, and to a large extent it's unnerving. Is the economy still that awful even though supposedly the recession ended this past summer?
I've always said check out the market the day after and FOMC gathering ends for a better read on how the Street felt/feels.
Initial Jobless ClaimsInitial claims fell again last week to 512,000 from 532,000. The result was better than the 523,000 result the Street was expecting. Meanwhile, people receiving unemployment insurance dropped to 5.75 million from 5.82 million. Generally one could say jobless claims above 500,000 indicates a country in crisis mode, but at least we can say for sure that the number is dropping consistently, albeit gradually. We are now at the lowest level of jobless claims since the first week of January.
Thoughts from the WSS Research Desk
The October same-store sales results are in, and the verdict, at least from my perspective, is that the holiday season is going to be stronger than forecasted for some and dour for others. It's as simple as that. Consumers, contending with a rising headline unemployment rate, maxed out credit cards from splurges made in 2007 (did we need the extra Coach bag?), higher interest payments on those cards, and sluggish income growth, will be very discerning in their purchase habits this holiday season. If a company has the correct product in the stores, such as skinny jeans and leather motorcycle jackets at specialty retailers, or a cold weather puffer jacket for a great value at Target (NYSE:TGT), the items will sell. Chasing product will be the name of the game as department stores have placed very cautious upfront orders, specialty retailers are maintaining inventory down anywhere from 10.0%-20.0% year over year (don't read too much into the "lost sales opportunities notion; consumers will migrate online to obtain the products from their favorite stores), and discounters focus on reducing the price of the stuff they have sitting in the warehouse to lure in customer traffic. Basically, a very competitive holiday season for consumer dollars is forthcoming, and one highlighted by fewer markdowns and the arrival of clever promotional strategies to move product (buy one get one free, free shipping, etc.).
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- Toyota Motor Company (NYSE:TM) unexpectedly reported a quarterly profit for the current quarter and trimmed its loss expectations for the full year. The Company said that government incentives around the world for more fuel efficient vehicles helped boost sales in struggling areas of Western Europe and the US.
Written by Charles Payne, CEO and Principal Analyst of Wall Street Strategies (wstreet.com) providing independent stock market research to over 30,000 subscribers, in more than 60 countries. Mr. Payne is a regular contributor to the Fox Business and Fox News Networks. For more information about Mr. Payne, please refer to the company’s website www.wstreet.com.