|Dow||+100.69 to 17,484.53|
|S&P 500||+11.47 to 2,023.57|
|Nasdaq||-2.91 to 4,620.72|
|10-YR Yield||+0.01 to 2.35%|
|Gold||-$26.10 to $1,141.60|
|Crude Oil||+1.73 to $78.94|
By Mike Burnick
The people have spoken and Republicans took back control of the senate on Election Day. So now the question is: How will this impact financial markets and the economy?
Well the early results look bullish for America, with the U.S. dollar surging higher and stocks moving up this morning in response. Longer term, I doubt the mid-term election results will fundamentally change much in terms of our economy or runaway deficits in Washington, no matter whether the red team or blue team is in charge.
As my colleague Charles Goyette so astutely observes: “I can’t think of a meaningful difference between Harry Reid’s and John Boehner’s positions on the Federal Reserve and monetary policy … I have to ask what difference this outcome will have on the fundamental issues that determine our Freedom and Prosperity.”
|With a Republican Congress and a Democrat in the White House for two more years, expect more gridlock.|
With a Republican Congress and a Democrat in the White House for two more years, it still means gridlock, plain and simple. Congress won’t be able to get any major legislation past the White House; and the White House won’t be able to get anything done in Congress.
More of the same in other words, but maybe that’s the best possible outcome.
After all, we’ve had plenty of gridlock in recent years with Republicans already in charge of the House of Representatives for the past two years … and the S&P 500 Index has gained 47.6 percent since Election Day 2012!
If this trend continues over the next two years, then I’m bullish on D.C. gridlock!
More importantly for investors, there’s nothing here that changes the fundamental reasons why trillions of dollars in foreign capital continues to flow into American assets: Warts and all, the U.S.A. is still the richest and most stable nation on earth.
In fact, according to data from the U.S. Bureau of Economic Analysis (BEA) and the Organization for Economic Cooperation and Development (OECD), over $10 trillion of foreign capital has flowed into the U.S. since 2009 in search of better returns.
And the tidal wave of investment in U.S. assets is accelerating; with the biggest capital flows taking place in 2013 and so far this year. It’s easy to see why: Compared with the paltry returns in Europe, Japan and other parts of the world — the investment prospects for U.S. stocks look brighter than ever!
Just consider the dimming prospects in Europe (EU). The EU economy is facing a triple-dip recession, its third economic contraction since 2008! Just look at the facts:
Real economic output in the EU remains three full percentage points below the peak before the 2008 recession, even as U.S. GDP advanced to new highs last year …
Europe’s finances are in dismal shape compared with the U.S. Household debt was higher at the end of 2013 than before the 2008 credit crisis began. And consumer spending across the EU, the lifeblood of its economy, was lower in 2012 than at the peak in 2008.
As a result, deflation has the upper hand across Europe and there is $500 billion to $1 trillion of excess cash sitting in European bank accounts, earning negative real interest rates right now.
|“The U.S. still looks like the best game in town to overseas investors!”|
Is it any wonder why capital is flowing out of Europe at an accelerating pace, and into U.S. assets! Imagine that you are a European investor searching for the best return … what would you do?
Bottom line: No matter who’s in charge at either end of Pennsylvania Avenue, the U.S. still looks like the best game in town to overseas investors! Which is why foreign capital will keep flooding U.S. markets in search of higher returns.
Some of the money is going into domestic real estate, but property investments aren’t very liquid, as many investors found out the hard way during the real estate bust a few years ago.
Some is flowing into the perceived safety of U.S. Treasuries, but you can’t expect much return at today’s ultra-low yields, and could face big losses when interest rates start rising.
That’s why most of this capital is heading into stocks, not just any shares, mind you, but the most elite companies that have the best balance sheets, the strongest sales and profit growth, and especially the most consistent returns.
That’s my take, but I want to hear your opinion:
Do you think U.S. stocks are the best game in town?
Did yesterday’s election results change your outlook on the U.S. economy and stock market?
I want to know what’s on your mind so let me know what you think by joining the discussion here.
|Other Developments of the Day|
While fracking is seen as the future of the U.S. energy sector, voters in a Texas city approved a ban on the process, a victory for environmental groups helping to support the move.
Voters in the town of Denton in northern Texas managed to do what residents of several other cities had failed to do by getting hydraulic fracturing banned in their area. But court battles are sure to follow — the energy lobby in Texas filed for an injunction, claiming that the measure violated state law and infringed on the rights of mineral rights owners. The vote gained 58 percent of the 25,376 votes cast, Reuters reported.
Did you call a taxi? It might not be arriving at your door to pick you up — it might be delivering your latest Amazon.com order. The Wall Street Journal reports that the e-commerce company tested package delivery by taxi cabs in San Francisco and Los Angeles, citing people familiar with the matter.
The move represents Amazon’s latest experiment in regard to package delivery as it seeks alternatives to United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service. As widely reported, Amazon is also considering the use of drone aircraft to deliver packages.
Oil prices rebounded from their recent slump after rumors of a pipeline blast in Saudi Arabia and data showing that U.S. crude inventories rose 460,000 barrels last week, less than the 2.2 million barrels forecast by analysts. Saudi officials said that a fire had broken out during repair work at a pipeline but that it was under control and no terrorism was suspected.
“The Saudi rumor definitely shook things up, given that we’re living in a world full of threats to oil supply. But we did calm down after that and step back and look at the bigger picture of what the inventories meant,” Phil Flynn, an analyst at Price Futures Group in Chicago, was quoted by Reuters as saying.
P.S. Yesterday’s election results make it an even clearer favorite destination of trillions of dollars now fleeing conflict and turmoil overseas. And already, they are bidding up the U.S. dollar today.
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