Investors are largely supportive of the U.S. midterm election results

Posted: Wednesday, November 7, 2018 - 08:56 EST

The U.S. midterm elections were held yesterday that saw the Democrats take back control of the House, with the Democrats holding 219 seats against the Republican’s 193 seats as of this morning. The Republicans were able to keep control of the Senate winning 51 seats versus the Democrats 45 seats.  The change of control in congress is being viewed largely as disapproval for the current Trump administration, as there was a surge in voter turnout to voice their displeasure. The divide in government may suspend new policies that the current administration had hopes to enact, unless there is strong bipartisan support.  Investors are largely supportive of the U.S. midterm election results despite the diminished chance that a new round of tax cuts could be passed.  The Democrats would be able to keep radical policies from being enacted and could provide a sense of reduced volatility and more certainty going forward.  As a result, equity markets in Europe are broadly up around 1%, while U.S. equity futures are pointing towards a higher open as well.

The Canadian corporate credit market was mostly calm yesterday as most investors stayed on the sidelines awaiting the midterm election results.  Canadian government rates are mostly unchanged to open this morning, although U.S. Treasury rates in the long end are lower by approximately 2-3bps.  The U.S. dollar is also weaker this morning, against the Canadian dollar, in the risk-on rally. Trading volumes were generally thinner yesterday and as a result spreads ended the day unchanged.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,755.45 0.63% -5.31% 4.69% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,292.71

0.49%

-4.62%

-3.22%

-1.64% 3.68% 4.44% -4.52% 6.77% -0.56%

Rates:

 

Today

% Change

QTD change

YTD change

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Canada 5 Year

2.45%

0.01% 0.11% 0.58% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.53% 0.02% 0.11% 0.49% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.55% 0.00% 0.13% 0.29% 2.15% 2.47% 2.27% 2.23% 2.21% 2.42%
30yr Generic Corporate A rated Spread 1.30% 0.02% 0.00% 0.02% 1.21% 1.24% 1.21% 1.24% 1.28% 1.30%
30yr All-in Corporate A rated Yield

3.85%

0.02% 0.13% 0.31% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.19% -0.03% 0.13% 0.79% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 62.982 -1.260                

The information contained herein is intended for advisors for general information only and is compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the commentary and expressed by the portfolio manager are subject to change without notice and are provided in good faith without legal responsibility. All market data is sourced from Bloomberg.