All Eyes on Washington

Market Reaction: October 1, 2018

Highlights

Global equities finished the week slightly lower. However, on a quarterly basis, U.S. equity markets posted solid gains with the S&P 500 up 7.2%. The Dow Jones rallied 9.0% during the quarter as trade fears eased. Emerging market shares were the laggard – finishing the quarter 1.1% lower. The 10-year U.S. Treasury yield finished the week unchanged at 3.06%.

With trade tensions starting to ease a bit, investors will likely shift their attention to the upcoming U.S. mid-term elections. The odds appear to favor the Democrats in the House and the Republicans in the Senate. The base case scenario seems to be a Democrat-led House and a Republican-led Senate. However, analysts have clearly gotten it wrong before.

Gridlock in Washington is nothing new and equity markets have traditionally rallied post mid-term elections (regardless of the result). Though knee-jerk reactions to the downside remain a possibility.