The spotlight’s on earnings and elections

Over the course of the last year, US equities have consistently touched new highs.

Most of the capital and investor interest has flowed to companies well-positioned in the digital domain such as Apple (AAPL), Amazon (AMZN), Facebook (FB), Netflix (NFLX), and Google (GOOGL).

Last month, the Federal Reserve raised interest rates by one-quarter of a point and noted its Fed Funds rate target of 2.0% to 2.25%. It was the third such in 2018, and one more might be on the way.


Rising Yields

In recent trading sessions, the yield on 10-year Treasury notes have hit a multi-year high of 3.23%.

Many market participants, such as the noted bond investor Jeff Gundlach, believe bond yields are headed higher for a while, partly because of the potential for higher wage inflation.

Equities have dipped of late, which some blame on the rise in higher fixed-income yields.

Global Tensions

Overseas, the Italian government has caused a stir by projecting a wider budget deficit. That, plus heightened tension between Germany and other Eurozone countries over fiscal policy, has some traders predicting the Euro currency will come under increasing selling pressure.

China and the United States continue to spar both financially and politically, over various issues, many based on trade.

The modified NAFTA trade agreement was altered a bit to help specific industries in the US, especially car manufacturers.

Earnings Season

In my opinion, investors need to focus on two things going forward.

First off, there’s the third-quarter corporate earnings season that will provide a sense about Corporate America’s profit outlook.

Then there’s the critical midterm election, where control of both Houses of Congress will be determined.

In my view, the Democrats will retake the House while Republicans will hold on to the Senate.

The country seems quite divided on many issues so the midterm election is quite unpredictable with emotions and interest running quite high.

Robust Economy

The economy is growing faster than it has in many years, which I believe is positive for both consumers and businesses.

The latest jobs report came in a bit light, with the number of 134,000 well short of consensus estimate of expected 191,000.

That said, the unemployment rate dipped to 3.7%, the lowest rate since 1969.

Photo Credit: KyOn Cheng via Flickr Creative Commons