-September 7, 2018 Weekly Capital Market Update. The month of September started with a rocking start bringing across-the-board equity market declines; this was in response to uncertainties related to the discord in the Trump Administration, lower oil prices and headwinds associated with China tariffs and the NAFTA negotiations with Canada. All U.S. equity market indices showed weakness for the week with the S&P 500 Index declining -1.03%, Dow Jones Industrial Average edging downward -0.19% and the Nasdaq collapsing -2.55%.
Recent polls have shown strong gains for Democrats, raising the prospect that the party will take back the House and maybe even the Senate. So what would that mean for stocks? Well, the historical picture is mixed. Overall, stocks typically have a tough September heading into the November midterms. However, immediately before and after the election, markets are relatively unaffected, no matter the outcome. Generally speaking, from the beginning of October until the end of the year (in a midterm year), stocks rally strongly.
Looking at the heated and divisive political situation today, it is in an investor's best interest to understand that insofar as ongoing Trump turmoil may increase market volatility (at times), it is important to keep focused on what has been driving the market trends over time: Fed policy, availability of credit, economic growth, and robust earnings. LPL Research has assembled a recession watch indicator that shows low risk for a recession in the next year, while ISM Manufacturing index rolled in at 61.3 versus the estimate of 57.5. Moreover, comments from the business leader panel reflect continued expanding business strength. Looking ahead to Q3 2018, the estimated earnings growth rate for the S&P 500 is 20%. If 20% is the actual growth rate for the quarter, it will mark the third highest earnings growth since Q3 2010 (34.1%).