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The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's headlines

1 - Markets idle through Election Day

2 - Short term interest rates keep rising

3 - Chart of the Day: The best of times for corporate earnings

Markets Close

Dow
25,637.11 +0.69%

S&P
2,755.50 +0.63%

Nasdaq
7,375.96 +0.64%

VIX
19.88 -0.40%

Bitcoin*
6,448.62 +0.31%

EUR/USD*
1.1418 +0.00%

*Currency markets and Bitcoin trade 24 hours, the figures here indicate movements between 9am and 4pm ET

#1 Markets idle higher through Midterms
It was a relatively quiet day for U.S. markets, which all ended higher on lighter volume and very little volatility. In the U.S., a lot of the attention is at the polls with people either trying to vote, voting or waiting for the results to start trickling in. We are, too, so we'll keep this quick today.

You'll see a lot of headlines about how the markets will react if the elections go one way or the other. The general consensus is that if the GOP wins both the House and the Senate, markets will rip higher as President Trump will have an unblocked path to push forward his agenda for the next two years, at least. If the Democrats win the House and the GOP holds the Senate, the general consensus is that markets may trade lower as Democrats try to block Trump's agenda and potentially roll back some of his policies.

Why it Matters: The truth is, no one really knows how the market will react until the market reacts. Remember, the popular narrative before the 2016 Presidential election was that markets would crash and the U.S. would enter a recession if Trump was elected. The opposite happened, and anyone who sold stock based on the prevailing wisdom at the time missed out on an epic rally. The S&P 500 is up 26 percent since election day 2016. That's the best performance over the same time frame under any other president in the past 64 years. Under President Dwight Eisenhower, the S&P 500 rose 29 percent from his election in November 1952 through November 1954, per Reuters.

What's Next: The fallout. Trump has not disguised his agenda for the next two years. Deregulation, heavy spending on infrastructure, defense and anti-immigration measures, potentially more tax cuts and tough talk on trade. The question for investors is whether the market will be dictated by Washington, or by what's actually happening inside companies. They are connected when it comes to taxes, trade and economic growth, but there is a widespread feeling that companies have already benefited from the Trump agenda and it is all priced into stocks.

Even Alan Greenspan, the former Fed Chair, is weighing in on the matter.

Meanwhile, companies have reported robust earnings. In our chart of the day, below, Pension Partners shows that operating earnings growth for the S&P 500 is at its highest level since 2011. Some of that is due to favorable tax rates, but to place all the credit on that policy move would be short-sighted. Whether those gains will continue is the $6 trillion question.

There is a healthy bout of pessimism out there right now and October was just a taste of it. Stay alert.
Read More:
Stocks Enter a 'Choppy Bear Market' After October's Plunge
Why Big Banks' Stock Rebound Will Fizzle

#2 Short term Treasuries keep rising
We've alerted you about this before, but rates keep rising on short term U.S. Treasuries. Some of it is a function of higher interest rates, in general, but the bigger picture is the apparent lack of long-term confidence in the U.S. economy. The Congressional Budget Office (CBO) projects U.S. economic growth to slow from 3.9 percent to 2.4 percent in 2019. Those forecasts have been out there for a while, but investors seem to be slow to react to them, until now.

The benchmark U.S. Treasury 2-year yield rose to 2.92 percent, its highest level since June 2008. The 10-year U.S. Treasury note, meanwhile, is yielding 3.23 percent. We are getting close to what is called 'the inverted yield curve'. Hint: It's not a yoga position.

Why it Matters: Listen to what Schwab's Kathy Jones has to say about why this so important. She's the head of fixed income for the money manager, which runs $1.6 billion.

What's Next: The FOMC meets tomorrow for a two-day meeting to discuss Fed policy. They are not likely to raise rates at this meeting, according to economists, but they are likely to raise them at the next meeting in December.
Read More:
What is a yield curve and why is it important?
The Impact of an Inverted Yield Curve

International headlines:
Global Stocks Wrap
EU Approves Disney Buy From Fox If It Makes TV Divestments

Chart of the Day: The best of times for corporate earnings
The chart speaks for itself, but it's worth noting that we may have seen the 'best of times', for the largest companies' ability to generate operating earnings. With most companies' earnings reports for the quarter ended Sept 30, 2018 already released, Pension Partners Charlie Bilello notes that these levels of EPS growth haven't been seen since 2011. Tax cuts, a hot economy in the US and abroad and a healthy consumer have helped. Two out of three of those factors are no longer in play. The consumer remains healthy in the U.S. and will benefit from lower income taxes, but inflation is lurking and market volatility will return.