Big Week

The week ahead could potentially see some market volatility as there are numerous key issues that could fuel price action. The ongoing trade talks with China, the Fed meeting and of course the midterm elections could all impact market sentiment.

The highly anticipated midterm elections are quickly approaching, and recent reports suggest that the democrats have a significant lead. The election is of significant importance, as a flipping of the House from republicans to democrats could have a huge effect on the Trump administration’s agenda going forward.

Some analysts have suggested that a victory by the Democrats could be bearish for stocks. Democrats could look to undo some of the recent loosening of regulations that has been put in place. The chances of any further tax cuts would also likely dwindle, and business may begin to rethink some of their plans. Either way, a democratic victory could potentially fuel some gridlock when it comes to policy-making as lawmakers would be very likely to vote along party lines.

This election has the potential to fuel sharp declines in stocks and risk assets, and could also have a large effect on the dollar.

In addition to the election, the ongoing war over trade with China is likely to remain an area of focus. There was some optimism late last week that perhaps a deal was getting closer, although that optimism has since abated as Chief Economic Advisor Larry Kudlow said no deal was imminent.

Markets will also be paying close attention to the Fed this week as it meets for its regularly scheduled meeting on monetary policy. No action is expected from the central bank this week, but investors may be very interested in the central bank’s statement following the meeting. The Fed will almost certainly hike rates again before the end of the year, but the plan beyond that is starting to look a little cloudier. As of now, the Fed has penciled in another three rate hikes for next year. Some analysts have suggested that the central bank is moving too aggressively, and President Trump has also made his opinion of more rate hikes well-known.

Although stocks are seeing a little relief after recent selling, don’t be fooled. The pieces are in place for a significant decline and another bout of volatility. Recent upside in equities may be nothing more than a standard relief rally before the bottom falls out. Markets are having to contend with numerous issues that could fuel the next big drop, including the midterm elections, rising bond yields and the ongoing trade war with China. At some point, the burden of these issues will likely become too much for stocks to bear and a major reversal in equities may be seen.

Given the current economic and geopolitical landscape, now is the ideal time to diversify with alternative asset classes, and physical gold should be at the top of your list. This key asset class not only comes with significant upside price potential, but may also provide a hedge against accelerating inflation, a weaker dollar and lower stocks.

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