Wall Street Begs for Legislative Gridlock

Perhaps it’s a sense that the market sell-off last week was unjustified. Or maybe it’s the buyout frenzy that private equity firms orchestrate, which suggests that equities may still be historically undervalued. How about the consensus that Wall Street cherishes a deadlocked Congress, historically viewed as the most sanguine for business interests?

Any or all of these reasons could explain today’s run-up in equities, despite the rise in oil prices. Even bonds rally slightly in the home stretch. The major indices all close up to recover all of last week’s losses and then some. However, support on the consolidated volume side is slightly lower than the average posted last week, which suggests that some buyers remain cautious. Profit-takers will definitely be in action later this week; even in a bullish environment some gains are always consolidated.

Overseas, the rally in equities is replicated on major bourses in Asia, Europe and South America. World markets, like Wall Street, seem to be betting on a legislative gridlock in tomorrow’s mid-term elections.

The rising tide lifts all stocks in the folio. EEM is particularly impressive with a 2.4% run-up. It is helped by strong foreign purchases of Brazilian equities in October and today’s moderate rise in crude prices – EEM is 10% weighted in Brazilian stocks and 18% weighted in energy stocks. If foreigners are buying into Brazilian equities, it is likely they are also buying into other emerging markets, which bodes well for EEM.

I’m still on the hunt for health-care real estate investment trusts (REITS), the preferred gateway into the health-care sector. I’ve narrowed my choices down to two REITS – Nationwide Health Properties (NHP) and Ventas, Inc. (VTR). At this point NHP is in pole position because preliminary research shows it to be more diversified - in terms of operators and sources of revenue, more transparent, and less dependent on Skilled Nursing facilities and Hospitals - properties that derive the bulk of their income from Medicare and Medicaid. By the weekend a final decision will be made.