2018 Elections: Investors Should View as a Sideshow

Summary

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WSJ Your Money Briefing

Episode Title: 2018 Elections: Investors Should View as a Sideshow
Host: J.R. Whalen
Guest: Justin Lehart, Wall Street Journal “Heard on the Street” Columnist
Air Date: November 6, 2018

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Overview

This episode tackles the intersection of the 2018 U.S. midterm elections and financial markets, focusing on whether investors should react to election results or remain focused on more significant economic drivers. Host J.R. Whalen is joined by columnist Justin Lehart, who argues that investors should treat the election as a “sideshow” compared to enduring economic forces like labor markets, Federal Reserve policy, and trade tensions.

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Key Discussion Points & Insights

1. Market Expectations for the Midterms

• The market is generally anticipating Republicans will hold the Senate and Democrats will take the House.
• Investors are hedging against unlikely scenarios:
  • A Democratic sweep is seen as potentially negative, due to expected political turmoil and increased infrastructure spending leading to deficit issues.
  • A Republican sweep might please equity investors (tax cuts), but could worry bond markets due to fiscal concerns.

“One bad thing I think for the market would be for Democrats to sweep, not just because that could put more pressure on President Trump and create sort of political turmoil, but also because ... increased infrastructure spending ... would create a deficit problem.”
— Justin Lehart [02:16]

2. Real Economic Forces at Play

• The outcome of the elections is unlikely to meaningfully change the economic trajectory in the short term.
• Unemployment remains historically low at 3.7%, fueling wage inflation.
• The Federal Reserve is raising interest rates to counteract inflationary pressures.
• Economic stimulus measures already in place are continuing to bolster the economy.

“There’s not that much that is going to really change... The unemployment rate is 3.7%. It’s creating wage inflation and the Federal Reserve is raising rates. And that is not going to stop.”
— Justin Lehart [03:23]

3. The True Market Movers: Trade Policy

• The main political risk for markets is the U.S.–China trade dispute, which is being handled unilaterally by President Trump, not by Congress.
• Congressional control is unlikely to influence tariffs or the outcome of trade negotiations.

“Then we have one political thing that’s really affecting markets is the trade situation. But this is not a congressional issue. Right. This is something that Mr. Trump can and has been doing unilaterally.”
— Justin Lehart [03:47]

4. Investor Priorities Shouldn’t Shift Because of Elections

• Major market movements are due to structural economic factors, not political ads or typical election volatility.
• Investors should stay the course and not overreact to headlines.

“People have been talking a lot about the election, but you don’t see the market swinging back and forth because of election ads. Right. It’s swinging back and forth because of these other concerns.”
— Justin Lehart [04:37]

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Notable Quotes & Memorable Moments

• On the limited impact of the midterms:
  “Investors should treat the elections this year... as a sideshow because it’s shadowed by some real economic forces that have been at work for some time.”
  — J.R. Whalen [03:13]

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Timestamps for Important Segments

• 00:36 — Show introduction and latest money/market news
• 02:16 — Lehart discusses market scenarios for the midterms
• 03:23 — Deeper dive into underlying economic fundamentals
• 03:47 — Politically-driven market risks (trade disputes)
• 04:37 — Why investors shouldn’t focus on election news

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Summary

This episode asserts that while the midterm elections may capture headlines and provoke speculation, most investment decisions should continue to be driven by broader, longer-term economic trends—specifically unemployment, inflation, Fed policy, and the administration’s unilateral decisions on trade. Rather than reacting to political “sideshow” events, smart investors are encouraged to keep their eyes on the economic fundamentals determining real market movement.

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Transcript

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[J.R. Whalen]

With your money briefing. I'm J.R. whelan at the Wall Street Journal in New York. Some of the midterm election results will be jaw dropping and some will be eye popping. But investors should view the elections as a sideshow and not let them affect their portfolios. We'll tell you why in a moment. First, these money and market stories you should know. Amazon says it is offering free shipping and no minimum purchase on orders delivered through the holidays, countering shipping deals from rivals Target and Walmart. The online retail giant also says it is offering free same day shipping on more than 3 million items to Amazon prime shoppers as it looks to boost membership. And customers who pay $119 a year for a Prime membership already receive free two day shipping with no minimum order. And Wall street is betting on a natural gas winter season shortage that pushed futures prices for natural gas for December up nearly 30 cents. That's the largest one day advance in nearly three years. Higher power consumption amid extreme temperatures boost natural gas demand. And a cold winter last year and hot summer weather have kept US stockpiles nearly 20% below their five year average. The midterm elections will feature some splashy headlines, some upsets, some recounts. But the Wall Street Journal heard on the street team says that should not distract investors. And columnist Justin lehart is here to explain. So Justin, we're going to see no doubt a market reaction to the midterm results. And the market has a scenario baked in where Republicans hold the Senate but the Democrats take the House.

[Justin Lehart]

Yeah, yeah. I think that's what most people expect. That's not necessarily what's baked in. Right. People are always hedging against risk. They're thinking about, well, what would be the bad thing that can happen. One bad thing I think for the market would be for Democrats to sweep, not just because that could put more pressure on President Trump and create sort of political turmoil, but also because if

[J.R. Whalen]

there wasn't enough turmoil already and enough division.

[Justin Lehart]

Yeah, yeah. And there's also concern that among some investors that there would be more of a chance of increased infrastructure spending, which would create a deficit problem. Then also on a Republican sweep, maybe equity investors would probably like that if there were prospects of some sort of additional tax cut. But in the treasury market, they wouldn't like that. They might not like that because again, we have this fiscal problem.

[J.R. Whalen]

And you write in your column that investors should treat the elections this year at least as a sideshow because it's shadowed by some real economic forces that have been at work for some time.

[Justin Lehart]

Yeah. There's not that much that is going to really change. It doesn't seem to be with the election. Let's just look at what's going on. The unemployment rate is 3.7%. It's creating wage inflation and the Federal Reserve is raising rates. And that is not going to stop. Right. The Fed is trying to rein in the economy. We have stimulus that's already in place that is bolstering the economy. At some point that's going to fade. That's a concern. But that's another reality of what's going on. Then we have one political thing that's really affecting markets is the trade situation. But this is not a congressional issue. Right. This is something that Mr. Trump can and has been doing unilaterally. So how that pans out how tariffs and trade disputes with China eventually work out, if they get worse and worse, if there's detente that's not in Congress's, Congress isn't really going to have a say in that, of course.

[J.R. Whalen]

Okay. So labor costs and tariff battles with China, regardless of who has control of whatever chamber of commerce, that's not really going to affect that.

[Justin Lehart]

Right. And again, this is the thing to remember is this is what investors have been worrying about. Right. They haven't been talking. People have been talking a lot about the election, but you don't see the market swinging back and forth because of election ads. Right. It's swinging back and forth because of these other concerns.

[J.R. Whalen]

All right. Well, good advice for investors. That's Wall Street Journal Hurt on the street columnist Justin lehart with us. Justin, thanks for being with us.

[Justin Lehart]

Thank you.

[J.R. Whalen]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[Electronic Payments Coalition Representative]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen @schwab.com washingtonwise.