Mark Lister, 5 November 2018

After a shocking October, November brings plenty of key events for global markets to digest.

It all starts this week with the 2018-midterm elections in the US. All 435 seats in the House of Representatives are up for grabs, while 35 of the 100 seats in the Senate will be contested.

Voter turnout is usually low in midterm elections, but thanks to the controversy that surrounds President Trump, this time around it could be the highest in years.

At present, both parts of Congress are controlled by the Republican Party, which is aligned with Trump. That’s likely to change over the coming days, with the Democrats expected to take control of the House.

This would mean more gridlock in Congress, with the Democrats in a potentially stronger position to block (or at least delay) some of the President’s plans by refusing to enact them.

Ironically, this could be a modest positive for markets, as it would mean neither side has a particularly strong position to enact change. This is a long history of US shares weakening in the lead up to midterm elections, before performing well in the aftermath.

However, it would likely increase the risks of government shutdowns in future, as the two sides of Congress will be unable to agree with each other at times.

A divided Congress could also mean President Trump focuses more intently on the areas where he can exert more influence, namely trade and foreign policy. As a result, a better showing from the Democrats won’t necessarily ease those tensions.

Once the political dust settles, the Federal Reserve announces its latest policy decision. An increase in interest rates is unlikely this week, although that won't stop another upward move coming in December.

The central bank is unlikely to stop there, not while the US economy is so strong. With unemployment at the lowest levels since 1969, consumer confidence near the highest in decades and economic growth looking robust, there is little chance of the Fed backing off.

Arguably the biggest worry for investors has been the ongoing dispute between the US and China. In recent weeks we’ve had threats of comprehensive tariffs on all remaining Chinese imports, as well as reports suggesting a deal could be on the cards.

President Trump will meet with Chinese President Xi Jinping following the G20 summit in late November, and this is shaping up as a make or break encounter. A thawing of the icy relationship would be a huge positive step for the global economic outlook, but a stalemate could see the disagreement escalate heading into 2019.

Oil prices will also be in focus this month, as the US restores sanctions on Iran. After a sharp rise earlier in the year oil prices have fallen 16 per cent over the last month, so let’s hope they stay down.

There is also a possibility we get a positive surprise or two from the other side of the Atlantic. News of a Brexit deal could come this month, as might some progress over the Italian budget.

After the worst month for US shares in more than seven years, history points to a rebound as Christmas approaches. Since 1950, November has historically been the second strongest month of the year for the S&P 500, while December is number one.

Whether this is a November to remember, or one investors will want to forget, could depend on these few crucial events.


This article was also published in the NZ Herald on 4 November under the title "Mark Lister: What will shake or boost stock markets this month".