Art Hogan, Chief Market Strategist at B. Riley Wealth Management, joined Cheddar News to discuss what to expect from the markets as midterm election results trickle from races. 

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Wall Street Watching Potential Gridlock in Washington 

joining us now to discuss all of this is art Hogan. Chief market strategist at B Riley wealth. Art thanks so much for joining us this morning. Welcome to the show. Many people thought we were going to see a red wave in the midterms, but that's not the case so far. What do you make of the midterm results and what are you watching from the markets as these results continue to trickle in here? Yeah, I would certainly say this market and over the course of the last three days was trying to bake in a divided government, right? Some gridlock. And clearly that result is likely what we're going to have historically, if you went back to World War II, um, the incumbent resident of the White House loses about 26 seats in the house and about four seats in the Senate. And it looks like the margins are gonna be much closer than that in this particular election. But clearly, I think, I don't think it's too early to say that the republicans will have a slim majority, at least in one chamber of Congress. And that's likely the House, the Senate is too close to call. Um, and we probably won't know about the Senate for a while, but, you know, with just one chamber of Congress, that's enough to sort of usher in gridlock. And with gridlock, as you just explained, brings, you know, a great deal of no major changes. And and Wall Street tends to applaud that. So for the next two years, we likely don't see any changes in the tax code, any major regulatory changes. Um And and you know, so that's the good news? That's that's what Wall Street tends to applaud. The bad news that comes along with that is the government starts to function less efficiently. So things like raising the debt ceiling, agreeing on a budget tend to become a little more tricky. And and clearly when we've seen that in the past, that kind of uncertain around the budget, having to shut the government down. Things of that of that nature that tends to be a negative. So, you know, the puts and takes of all of this is that gridlock is good unless and until gridlock means that we have to shut the government down and hopefully we don't get through that or to that point of Kabuki theater and drama. Because we've seen that movie play out before when you go to the 11th hour on shutting the government down, not agreeing on a budget, not raising the debt ceiling. You know, Wall Street certainly doesn't like that uncertainty we've had, we've going back just to the Obama administration and seeing that happen in the midterms and actually have S and p cut the debt rating in the United States was not a positive event for the markets. I think that was such a great breakdown. And you explained there what gridlock would mean, you know, different fiscal policy, different spending priorities for each party, depending on who takes power to that point. You know, based on the election results, at least what we're seeing right now. Are you expecting the Fed to pivot at all its approach to interest rate hikes based on what we've seen so far? Well, I'll tell you this, you know, the fact clearly is is a political and what they're really trying to do is tamp down inflation has been very aggressive at front loading their monetary policy with four consecutive 75 basis point rate hikes. I think what the Fed is now leaning into a bit is the fact that monetary policy policy typically has a long and variable lags to it. And I think that there's a growing majority of members of the FOMC that believe that they need to slow the pace of that increase and to that end, while the terminal rate may finally get to 5% at or about the first quarter of next year, we may well see a december rate hike that is less than 75 basis points and that's starting to become a consensus in the market place. So I think that's a positive. I think we've gotten to a peak and hawkishness from the Fed. I think the Fed is likely to get to a place where the terminal rate happens in the first quarter of this of next year. And I think we've also likely seen p inflation and, you know, we'll find out more about that tomorrow the CpR report, but also the third peak that I think we've reached is the sort of pessimistic positioning by investors and as we look at how investors are positioned, it's very pessimistic and and we haven't seen that this poorly positioned going our way back to like 2008, 2009 during the great financial crisis. So I think you put all three of those peaks together that likely becomes a tailwind combined with the tailwind of the mid term election cycle where the calendar is favorable. All right. I'm glad you brought up that C. P. I. Report because of course investors are anticipating the consumer price index coming out tomorrow. So what are you watching from that report that will give further insight about how potentially the Fed could handle inflation moving forward given that there is a lag as you mentioned, that's the important part. When we look at things like the C. P. I. We need to see sequential improvement. Right? And and if we look at the C. P. I. Corps on a month to month basis, were certainly expect to see that come down the year of year number is likely going to come down as well. We need to see continued sequential improvement over the course of the next several months for the Fed to say, okay, we started this six or eight months ago and and we started tightening and we're actually seeing some results as it relates to the to the C. P. I. N. And more importantly for the Fed the PC. Index. So it's it's all about sequential improvement. So if we've actually seen that inflation has peaked and is rolling over and you know, while not getting anywhere close to what we'd like to see in terms of the headline number getting, you know towards that 2% target the Fed has. I think it's the improvement that matters and it's the improvement that A slows the pace of rate hikes and B gets the Fed to the terminal rate sometime in the first quarter next year. Are we are unfortunately out of time. But thank you so much for that insight and for that great breakdown. That's Art Hogan, chief market strategist at B. Riley wealth.