It was another up and down week, during which we saw the market drop early and then make a climb back mid week until Apple’s earnings disappointed on Thursday taking the market down again on Friday. October wiped out all the gains for the year and if you are feeling bad about your portfolio as of last week, you take can take heart in knowing that Warren Buffett’s Berkshire Hathaway lost more than $3 billion on Friday alone as Apple’s stock headed for its worst day on Wall Street in more than four years.
The funny thing is, on Friday, Labor Department said the U.S. economy added 250,000 jobs last month, well above the addition of 190,000 that was expected. Wages, meanwhile, rose 3.1 percent on an annualized basis in October for the first time since the recession.
And so, we have the economy on firm footing but companies are guiding to a weak Q4 2018. Why are we getting mixed signals from the economy and Corporate America?
Future Wealth’s View
The answer lies in the fact that economic data is backward looking while Wall Street and Company guidance is looking ahead to the next quarter. This is an important differentiation that is lost on many advisors and pundits who despite the bloodbath in October were pontificating that the correction was an opportunity to put more money into the growth sectors of the market, instead of going defensive. Some (Cramer on CNBC comes to mind) were adamant, even after they were proven wrong, in advising investors to double down on Apple and the rest of the FANG (Facebook, Apple, Netflix and Google) group. But, at the end of the day, it is our money not theirs, that falls prey to their mindless verbal assaults.
The next big test for the market comes on Tuesday when the mid term elections will be decided. Here is our read on the impact of the elections.
A Republican Sweep: The US dollar could rise as a result of continued tariffs on Chinese, European, and Canadian imports translating into a selloff in emerging market assets. But, US stocks could rally given the increasing chance of more tax reform and further de-regulation.
If Democrats Win the House: A Democratic takeover of the House might spook the stock market because of concerns about political instability, including hearings involving the Trump administration. And, a divided Congress, could be negative for the dollar as a fiscal stimulus to prop-up the economy next year is unlikely to happen.
A Democratic Sweep: Unlikely to happen. Democratic Leader – Nancy Pelosi will see to that.