Watch the wildcards

Question: Will the markets rally after the 2022 midterm elections?

Phil Orlando: In the post-war history of the United States, midterm election years like 2022 have a very distinct pattern. They're very choppy over the first six to nine months of the year, and then typically a month or so before the midterm elections, the market begins to price in a change in control of government in Washington, and stocks rally hard into the end of the year and into the first half of the following year. This year, there are two fundamental developments that are critically important that markets are watching closely. The first is inflation, which probably peaked in June, but the question is how quickly is the worst inflation in 40 years coming down? The second is how is the Federal Reserve going to respond to that high inflation based upon monetary policy? Federal Reserve has been very aggressive in terms of hiking interest rates and quantitative tightening over the last couple of months, but we've got critical FOMC meetings to finish this year. So, those are two significant fundamental wildcards which may impact whether or not we get that year-end midterm election rally.