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Market Commentary

Weekly commentary providing analysis with an outlook for the equity market.

November 23, 2022

Scott Wren, Senior Global Market Strategist

We’re past the election. Now what?

Key takeaways

  • As frequently occurs in the wake of any election cycle, the outcome may influence market direction in the handful (or fewer) of weeks after voters have made their decision.
  • After that, investors quickly get back to focusing on what the economy and earnings are going to do in the coming year.

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If you take a look at past election cycles, the immediate post-vote effect on the financial markets tends to play out in a similar fashion. On the national stage for instance, in the months prior to the election, polls might reveal one party holds the likely upper hand. In other words, investors and financial markets usually have a pretty good idea as to the outcome in advance of actual voting. As far as the market is concerned, control of Congress typically implies that a certain legislative agenda is going to be pursued, especially in the case where one party holds both houses of Congress as well as the presidency. In the case of the recent election, expectations called for a split government outcome where there was a high probability Republicans would take the House. And that is exactly what happened, but with a much smaller House majority than many projected.

But where do we go from here? First, consider what will be addressed in the lame-duck session that will occur between the time when Congress comes back from the Thanksgiving break and the new Congress is sworn in on January 3, 2023. The fiscal-year federal 2023 budget will need to be addressed in order to fund spending beyond the December 16 expiration of the continuing resolution. The debt-ceiling issue will also likely be addressed. Negotiating bumps in the road and delays for either might roil markets for a few days. Both issues will require compromise, but, ultimately, we believe the government will be funded and the debt ceiling will be increased.

As frequently occurs in the wake of any election cycle, the outcome may influence market direction in the handful of (or fewer) weeks after voters have made their decision. After that, investors quickly get back to focusing on what the economy and earnings are going to do in the coming year. This time around, inflation and what the Federal Reserve (Fed) is going to do about it are the major factors ultimately impacting economic growth and corporate profitability.

We continue to believe the U.S. economy will slip into recession very late this year or, perhaps, early in the new year. Our positioning has been defensive for most of the year as we believe it will be difficult for the major equity indexes to sustainably rally ahead of a recession where we look for earnings to contract along with economic growth. We continue to see the Fed hiking rates multiple times between now and early next year but see brighter skies and a more accommodative central bank in the second half of 2023.

Risk Considerations

Forecasts are not guaranteed and based on certain assumptions and on views of market and economic conditions which are subject to change.

Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Investments in equity securities are generally more volatile than other types of securities.

General Disclosures

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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