Financial Review

Still Counting

…Elections split down the middle. Dems take the House. GOP holds the Senate. Jeff Sessions fired.
Financial Review by Sinclair Noe for 11-07-2018
DOW + 545 = 26,180
SPX + 58 = 2813
NAS + 194 = 7570
RUT + 26 = 1582
10 Y un = 3.21%
OIL – .59 = 61.62
GOLD  – .40 = 1227.10


Finally, the mid-term election is in the books, and in Arizona we should learn the results in a couple of days, or longer.  The Arizona Senate race is so tight that they will take a couple of extra days to count all ballots cast. A possible victor could be announced by the end of the week. The Phoenix mayoral race will take longer. Kate Gallegos held a strong lead but not enough for a majority, so she will have a runoff election against Daniel Valenzuela in March. Phoenix Councilwoman Thelda Williams has been serving as temporary mayor and will continue until the runoff election. The McSally-Sinema race is still too close to call. As of today, McSally leads by about 15,000 votes but Maricopa Country Recorder Adrian Fontes his office still has a little under 500,000 votes to count. Sinema had been leading in Maricopa County. A majority are reportedly early voting envelopes turned in at polling centers on Election Day. Fontes said it could take as long as eight days until all of the votes county-wide are counted.


After Diane Douglas lost her re-election bid for Superintendent of Public Instruction during Arizona’s primary, the race comes down to Kathy Hoffman, a Democrat and public school teacher, and Frank Riggs, a Republican and former Arizona congressman. As of Wednesday at noon, less than 7,000 votes separated the two, with Riggs retaining the slight lead. And in the Secretary of State race, republican Steve Gaynor has claimed victor, but Democrat Katie Hobbs has not conceded the tight race.


Democrats will now control 5 of the 9 House Districts in Arizona. Doug Ducey won easy re-election. Mark Brnovich won re-election as Attorney General. Kimberley Yee won re-election as State Treasurer.


Arizona voters have approved a ballot measure launched by the Arizona Association of Realtors that prohibits the Legislature from taxing business services. Supporters of Proposition 126 said they wanted the ban because taxes on services would hurt economic growth and amount to double-taxation on profits from services that already are subjected to income taxes.


Prop 127 failed. Proposition 127 would have required state utility companies to get half of the power it sells to customers from renewable sources. That would have had to be met by 2030. APS strongly opposed the measure. Prop 127 ended up being the most expensive ballot initiative race in state history, a face-off between California billionaire Tom Steyer (who ended up spending almost $18 million) and the owner of the state’s big utility, Arizona Public Service Co., which spent almost $22 million.And while most voters claim to like the idea of clean air and water, it doesn’t look like they are ready to pay for the cleanup.


Voters have rejected a massive expansion of the state’s private school voucher program. Proposition 305 was placed on Tuesday’s ballot after educators collected enough signatures to block the 2017 expansion championed by Republican Gov. Doug Ducey. Opponents said it would siphon hundreds of millions of dollars from already-underfunded public schools. Supporters said the expansion would give parents more school choice.


Marijuana legalization had a very good election night on Tuesday. The big news came from Michigan, which became the first state in the Midwest to legalize cannabis for recreational purposes. And it appears to have won by a fairly big margin. There were also a couple of medical marijuana victories in Missouri and Utah. Both states went Republican in state races (particularly the Senate), yet they still showed solid support for legalizing medical pot. North Dakota rejected an initiative that would have legalized cannabis for recreational purposes. Shares of cannabis companies rose today. Tilray shares jumped 30.6 percent. Shares of New Age Beverages, which has previously announced intentions to expand into cannabis products, climbed 20.1 percent. U.S. shares of Canadian companies Canopy Growth, Aurora Cannabis and Cronos Group rose between 8 and 10 percent.


There were several climate change- and energy-related ballot initiatives up for a vote across the country. For the most part, they did not go well for fans of clean energy. The ones that utilities and oil and gas companies mobilized and spent big against lost.


The 2018 election was a body blow to partisan gerrymandering. Four states enacted redistricting reform that will diminish the role of politics in drawing district lines; more elected Democratic governors who can veto partisan maps. Another state, North Carolina, replaced a Republican state Supreme Court justice with a liberal who fought gerrymandering as a civil rights attorney. No matter what happens in 2020, it is all but guaranteed that the next decade’s maps will be significantly fairer than our current gerrymandered mess. Voters in Colorado, Michigan, Missouri, and Utah passed laws that restrict politicians’ ability to carve up districts along political lines. Colorado and Michigan amended their state constitutions and will now use an independent commission to draw boundaries for both congressional and state legislative districts. Voters in Kansas and Wisconsin elected Democratic governors, who could veto partisan maps in 2021. The GOP retained its supermajority in both state legislatures, however, so Democrats will need to flip more legislative seats in 2020 to prevent Republicans from overriding a veto.


After eight years in the minority, Democrats are set to regain control of the House in January, bringing divided government — and ambitious oversight — back to a deeply polarized Washington. With House control comes very real subpoena power — and a long list of potential executive branch targets. Dems will be introducing a wave of policy proposals demonstrating the party’s priorities on a range of issues, despite the vanishingly small odds that the GOP-controlled Senate would take up any of the bills. More concretely, they’ll be flexing their new investigative muscles with a focus on ethical questions swirling around Trump, his finances, and multiple members of his Cabinet — even though they’re likely to face legal battles and other pushback that may significantly slow or even stop the progress of some of their highest-priority likely probes.


Since 1928, stocks have produced an annual average return of 12% in years when a Republican president held office and control of Congress was split between Democrats and Republicans. And in the year following a midterm election that resulted in a Republican president and a split Congress, returns have averaged more than 20%. Perhaps gridlock makes further rate hikes from the Fed less likely, because fiscal policy has accelerated economic growth temporarily, but under gridlock, that’s likely to end sooner rather than later. With tax cuts and the previous spending increase in the rearview mirror, the pace of growth should slow down. Just a side note, the FOMC is meeting today. Tomorrow, the Federal Reserve will signal it intends to keep raising short-term rates gradually, despite the recent market volatility.


So, the election is over, and this afternoon Trump fired Attorney General Jeff Sessions. Sessions also wrote a resignation letter, which he says Trump requested, in which he outlined much of what he did in office. Trump tweeted that Matthew Whitaker, Session’s chief of staff, will take over as the acting head of the Justice Department, adding that a permanent replacement will be announced soon. Whitaker has publicly brainstormed about how Trump could rein in Mueller. Sessions was one of the first senators to endorse Trump and used his time as the nation’s top law enforcement officer to implement the anti-immigration “tough on crime” policies that were at the core of Trump’s campaign. Trump continually criticized Sessions for recusing himself from the probe into whether the Trump campaign colluded with Russia, a move that set the stage for the appointment of special counsel Robert Mueller. Trump has also complained that Sessions wasn’t sufficiently loyal because, since then, he has failed to prevent Mueller from indicting a growing number of Trump confidantes and targeting others.


What comes next isn’t clear. But it could herald enormous changes for the special counsel’s team. Up until now, Mueller has generally had the backing of his boss, Deputy Attorney General Rod Rosenstein, and has pursued a vigorous investigation. But their new boss, Whitaker, has made critical public comments about the probe, accusing the special counsel of “going too far,” and praising an article about how Trump shouldn’t “cooperate” with Mueller’s “lynch mob.” Whitaker has called the Mueller probe a “witch hunt.” He’s now in charge of it.


The S&P’s biggest boosts came from the S&P technology sector and the healthcare stocks, with both indexes gaining 2.9 percent. The consumer discretionary sector climbed 3.1 percent, spurred by a 6.9 percent rise in shares. Amazon provided the single biggest boost to the S&P 500.


And we finish today with what seems like a never-ending story. Wells Fargo has identified 145 more customers whose homes were foreclosed on because of an apparent computer glitch. Wells Fargo said in a filing on Tuesday that an expanded review found additional “errors” that inflated estimates of attorneys’ fees for homeowners in the foreclosure process. Wells Fargo now estimates that about 545 homeowners lost their homes after they were “incorrectly denied” a loan modification or deemed ineligible to apply. The bank said the glitch impacted certain accounts in the foreclosure process between March 2010 and April 2018, when new controls were implemented. The foreclosure mess adds to the list of customers who have been hurt by problems at Wells Fargo. One of the changes from yesterday’s election is that the new head of the House Financial Services Committee will be Representative Maxine Waters.


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