The election results are in, and it appears that control of Congress has shifted decisively. Markets responded positively, up ~1.8% in the S&P 500 and the DJIA up ~2.9% as of this writing, November 4^th.  This is an important point. While politicians are fond of claiming responsibility for market performance, there is only tenuous support for the idea that an administration or party dictates market returns.  The election does create a scenario where we would expect more than typical political deadlock, as while the Democrats have control of both houses of Congress, the President still wields the veto pen until the next election.

As to markets, the S&P 500 is trading above 7700, near all-time highs.  Despite a year of conflict and high inflation, the index is up ~12.5% year to date. Yields have declined overnight, and Brent Crude is trading at $95.19, having dropped from ~$103.60 as of yesterday’s close.  Taken together, these things indicate that the market is perceiving the passing of the political torch as a positive thing, and that stability is expected. Backing this up is the VIX (volatility index) dropping nearly 4 points to 16.99, which indicates expected volatility has declined as well.  Generally, what causes markets to become volatile is uncertainty, and if anything, the results of November 4^th suggest a fair amount of certainty.

Yields are lower after the results of the midterm election, but overall up substantially since the beginning of the Iran war.  Five-year Treasuries are yielding 4.678% and 10-year Notes are yielding 4.885%.  A-rated corporate bonds are yielding 5.368% and 5.794% in the respective maturities.  Overall, the environment appears benign, with rates edging down along with metrics of expected volatility, although we do not think we are out of the woods with respect to the Iran war, energy prices, and intractable inflation.