This article was originally published on ETFTrends.com.
The markets reacted as expected when a divided Congress was the byproduct of the 2018 Midterm Elections as the major indexes rallied along with exchange-traded funds (ETFs) that track the S&P 500 passing their 200-day moving averages.
In particular, the SPDR S&P 500 ETF (SPY) , iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO) rode the wave of the post mid-term election rally. In the last five days, in particular, the markets were already anticipating a move given that rallies following the election were a perfect 18-for-18.
As a result, the rally came as no surprise as political analysts were expecting a split Congress following the post-midterm election results, which would increase political gridlock–general consensus is that this typically benefits the capital markets. For example, a split Congress could help damper U.S. President Donald Trump's tariff-for-tariff battle with China.
The rallies were warmly welcomed by investors as October will be a memorable month for the capital markets, which were racked by swings of volatility after an extended bull run the last 10 years. However, some market experts are hesitant to say that the coast is clear in terms of volatility, which should put investors on notice to exercise more due diligence as opposed to simply riding the wave of another bullish move.
"The mid-terms are behind us, and the market now faces its own big test," said Frank Cappelleri, executive director at Instinet. "Another strong showing today would unleash some bullish technicals. ... While we can't deny this, a straight shot back to the highs still seems unlikely, as volatility historically persists for longer than a few weeks."
While some analysts are positing which sectors will benefit from the election results, others feel this presents an optimal buying opportunity for investors. Those who were reticent about entering into the market for fear of overvaluations as a result of the decade-long bull run can now view these opportunities as value propositions.
"This is your entry point," said Phil Blancato, CEO of Ladenburg Thalmann Asset Management., adding that positive seasonal factors, including strong holiday sales, should boost markets higher before the end of 2018. "You might get some volatility in the next couple of days as the market absorbs the result, but you buy those dips. ... Everything is telling you this is the time to buy" following the correction in October.
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