U.S. Midterm Results Offer Hope To Long-Suffering Emerging Market Bulls
The "cleanest" (if you will) read on the midterms in terms of the reaction across markets on Wednesday is the weaker dollar.
Theoretically, a split government should probably be ambiguous for the greenback over the longer-haul, but in the near-term, Democrats retaking the House looks likely to weigh on the dollar. The assumption is that prospects for another large fiscal stimulus push have now faded considerably and Trump will have to move less aggressively on trade. Of course "less aggressivel
The main reason of the EM beating was the strong dollar. A weak dollar therefore should help them. This summer you pointed out how a weaker dollar was one of the condition to keep US equity markets in a bull/lateral trend, or a correction was to be expected. If I remember well it was Needham that gave 95 in the dollar index as the level to monitor, that index went from 97 to 95.60 these days. Today we have US bonds yields lower, weaker dollar, and index futures up. VIX futures are down 12%, and this should prompt risk parity / algos to buy and overcome the supply from delta neutral funds that buy the dips and sell the rallies to rebalance the delta. Then there are the usual statistics on seasonals (last quarter, santa klaus rally, the 6 months from November to May, the midterm positive return of the following 12 months). It bodes well, but we will still feel the effects of the Chinese slowdown, and the yuan issue will turn up again. So while it’s possible to see levels near the ATH I’m not yet convinced that a strong bull will begin again. Bumpy and choppy is my expectation. I would be surprised to see another 2017 style melt-up.