Two Years Of Gridlock?
The big news to kick off November is neither economic nor international for a change, it’s political. The Republicans had an impressive showing at the polls, with the GOP taking control of Congress starting in 2015.
Although the outcome was basically expected, it’s the first time in eight years Republicans will have the majority in the Senate. A favorable map and poor approval ratings for President Obama led to the regime change.
Here’s the thing…
All the election really means is very little will get done in Washington for the next two years.
Democrats still have enough Senate seats to use the filibuster. And of course, Obama can veto anything he sees fit. There’s going to have to be some crazy compromise happening in order to pass anything meaningful.
And the government simply doesn’t have a strong track record of working together these past several years.
Here’s the good news…
The stock market tends to thrive during periods of gridlock.
It basically means the status quo will reign. And, the status quo has been a very favorable environment for US equities.
There are a couple unlikely scenarios which could derail the bull market. First, if Republicans refuse to raise the debt ceiling/approve a budget. I don’t see this happening after the last incident nearly destroyed the party.
Second, the GOP could go after the Fed and try to reduce its powers. Once again, I feel this is highly unlikely. Wall Street is very pro Fed and the Republicans can’t afford to alienate themselves from that voting base.
So, we’re going to be left with two years of rhetoric, with little to no action. I guess we should be used to that by now…
From a trading perspective, you can expect mostly sideways action with a bullish slant. In other words, it could be a great couple years for covered call trading. Keep in mind, covered calls perform best in a neutral to moderately bullish environment.
Yours in Profit,
Gordon Lewis
Category: Options Trading
