Will midterm elections drive mayhem in the markets? The upcoming midterm elections promise to be among the more interesting in recent decades. The Republicans can take comfort in elections generally being about “…the economy, stupid!” Unemployment is at multidecade lows and wages are trending higher.

On the other side, Democrats can point to the administration’s lack of progress on trade, President Trump’s below-average approval ratings, and the number of House of Representatives seats historically lost in a president’s first midterm election (~29 based on the past 13 such elections over 100-p

Beige Book Suggests Continued Moderate Economic Growth

The latest edition of the Federal Reserve’s (Fed) Beige Book, released last week, suggested continued steady economic growth. While signs of a tightening labor market and concerns about tariffs continue to appear, we believe they should be viewed within the context of Main Street’s generally positive view of the overall economy. The Beige Book is a qualitative assessment of the domestic economy and each of the 12 Fed districts individually. The report is prepared eight times per year, ahead of each Federal Open Market Committee (FOMC) meeting — the next of w

Strong manufacturing growth is a bellwether for overall economic health. Even though manufacturing is a dwindling part of domestic output, accounting for about 12% of gross domestic product (GDP), strong manufacturing growth has consistently preceded significant phases of GDP growth. Because of this, the Institute for Supply Management’s (ISM) U.S. Purchasing Managers’ Index (PMI) survey is one of the gauges we monitor in our Recession Watch Dashboard. Over its past five cycles, the U.S. economy has fallen into a recession an average of 46 months after the ISM index peaked [Figure 1].

ISM’s U.S. PM

Are emerging markets (EM) washed out? Last week the MSCI Emerging Markets Index officially sank 20% from its peak in late January. This prompted many bearish headlines, such as “Emerging Markets Slide into Bear Market amid Contagion Concern,” and “It’s Beginning to Look a Lot Like a Crisis.” At the same time, a recent survey from Bank of American/Merrill Lynch showed that global fund managers are underweight EM equities for the first time in more than a year. One thing is for sure: From a contrarian point of view, the level of pessimism we are seeing toward EM could potentially be a bullish sign.

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