This week the spinning wheel of the economy reminded us that what goes up must come down. Spooky manufacturing and productivity numbers kept the Dow underwater for five straight sessions before and after the Halloween holiday.
Strong employment numbers created a dead-cat-bounce that pushed the major indices upward this morning, but spikes in oil prices and interest rates drove market participants batty, leading to a sell-off that sent the Dow below 12,000. A dead-cat-bounce is the crass term Wall Streeters use to describe a misleading up-tick in stock prices after a prolonged decline. The term is based on the idea that even a dead cat will bounce if it falls far enough.
Economic numbers move markets, but other news does as well. The mean political season is upon us as next Tuesday's elections loom large. Many pundits and prognosticators are predicting that the Democrats will retake the House of Representatives and have an outside chance of becoming the majority in the Senate. What does this mean for financial markets? Well, it depends on who's talking.
Democrats claim their stated policies of raising the minimum wage and cutting the budget deficit through higher taxes on the wealthy will be good for the economy and therefore good for stocks. Republicans argue that higher taxes and wages will reduce employment, possibly igniting a recession, which would be bad for stocks. There's evidence from the past that can support both arguments, but ultimately whoever controls Congress come January will likely be doing so with a slim majority.
This means that in order to pass legislation and avoid Presidential vetoes, both parties will have to work together, which portends bipartisan compromise, or gridlock. Either scenario foretells a legislature that is unlikely to make any fundamental course changes on economic policy. This leads many analysts to believe that whatever the outcome on Tuesday, the election is essentially market neutral.
Regardless of one's political or market outlook, Stock Market Game (SMG) teachers should vote with their mouse by clicking on the
The SMG lesson plan, "What Causes Stock Prices to Change" is a great way to teach students about how current events can shape markets and the economy.
This week's stock idea: Let it ride on a railroad. TheStreet's own Rudy Martin likes the
transportation sector and railroads in particular. He's looking at
Burlington Northern Santa Fe
Union Pacific Corp.
. Regardless of performance, these are also three great stocks to talk about for anyone teaching 19th century American history.
See you at the polls.
This article was written by a staff member of The Stock Market Game.