Markets react to the midterms

Key takeaways

Markets reacted positively to the prospect of divided government because investors viewed gridlock as predictable and less likely to produce abrupt policy changes.
Stronger-than-expected labor data suggested the economy was resilient enough that the Federal Reserve could raise interest rates without immediately undermining employment.
MLB owners argue that payroll limits and shared local-media revenue would create competitive balance, while players contend a cap would limit their earnings and that spending does not guarantee winning.

Summary

Investors welcome expected congressional gridlock

Portfolio Manager Susan Schmidt said markets initially sold off before the election, then rallied as Democrats won enough seats to make divided government and congressional gridlock likely. Investors prefer that outcome because it reduces the chance of sudden policy changes, giving businesses and markets time to adjust while Congress and the president move slowly.

JOLTS report shows a resilient labor market

Schmidt said the Job Openings and Labor Turnover Survey was much stronger than expected, indicating that the labor market remains healthy and vibrant. Its resilience gives the Federal Reserve more room to raise interest rates without necessarily damaging employment, since the economy appears stronger than the central bank had anticipated.

Private employers added 86,000 jobs

ADP’s private-payroll estimate showed 86,000 jobs added, exceeding economists’ expectation of 75,000. The report preceded the larger federal employment report scheduled for Friday, offering another indication that hiring remained active.

The trade deficit stayed near $105 billion

The U.S. trade deficit was virtually unchanged in September at $105 billion. The brief economic update provided no indication of a significant month-to-month shift in the country’s trade balance.

MLB owners seek a salary cap to narrow payroll disparities

Major League Baseball owners may lock out players when the collective bargaining agreement expires Dec. 1, with a salary cap at the center of the dispute. The Mets paid Juan Soto $51 million annually for 15 years and had a $451 million payroll—more than six times Cleveland’s—so MLB executive Morgan Sword proposed minimum and maximum payrolls plus shared local-broadcast revenue. Players oppose a cap because it could suppress salaries and note that low-spending Milwaukee and Tampa Bay reached the World Series while the expensive Mets finished last in their division.

Show notes

Election day has come and gone, and big changes are coming to Capitol Hill next year when the new Democrat-majority Congress takes office. In the meantime, the economy keeps humming along. Investors, though, see potential for gridlock when it comes to governing — and aren't upset about it. And later in the show, Major League Baseball owners appear ready to lock out players when their union’s collective bargaining agreement expires on Dec. 1. At issue is baseball's competitive advantage.

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Major League Baseball argues a salary cap would bring competitive balance