By Ben Norris, CFA, Senior Investment Strategist, Vice President
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Halloween was last week, but the first full trading week of November has the potential to be the spookiest of the year for investors. The general election is on Tuesday, and the U.S. Federal Reserve’s (Fed’s) next policy decision is coming on Thursday. As it stands now, the race for the presidency is very tight, which likely means that we won’t know the winner of the election until well after the polls close on Tuesday evening. As we’ve highlighted in the past, most investors should avoid making any major changes to their investments based on the results of the election; depending on how you slice the data, the difference in returns between a Republican and Democratic-controlled government is negligible. Often the most important thing you can do to meet your financial goals is stay invested over a long time horizon and let the power compounding do its thing. Thursday’s Federal Open Market Committee (FOMC) meeting will almost certainly bring a 0.25% interest-rate cut, but investors will be looking for clues on future policy positions, especially the terminal interest rate the FOMC believes will be appropriate to achieve its dual mandate.
Last week featured several data points that should figure into the FOMC’s future decision, including third-quarter U.S. Gross Domestic Product (GDP), the Personal Consumption Expenditures Price Index (PCE) and several indicators tied to the U.S. labor market. Monday provided a solid start to the week as stocks finished higher and investors prepared for earnings from major technology companies. A cooling of geopolitical tensions in the Middle East also lifted investor sentiment. Oil prices fell by 6% following Israeli strikes on Iranian sites, which avoided key oil and nuclear facilities, a less aggressive path than feared. Still, the action stirred up concerns about possible disruptions to global supply chains. The major indices all ended the day in positive territory—the Dow Jones Industrial Average (DJIA) was the best-performing index with a gain of 0.7%.
Stocks closed mixed on Tuesday, with the NASDAQ Composite (COMP) and S&P 500 (SPX) seeing gains of 0.8% and 0.2%, respectively, while the DJIA fell 0.4%. Data released on Tuesday showed that job openings in the United States fell to a three-and-a-half year low in September as demand for labor weakened and businesses waited for signs of sustained economic growth. Job postings fell to 7.44 million compared to 7.86 million in the prior month, marking the lowest number of job openings since January 2021. Companies have reduced hiring activity after a surge of job additions following the pandemic and the effect of higher interest rates has slowed certain areas of the economy (manufacturing) and reduced demand for labor. Although the number of job openings has fallen significantly from peak levels, the number of employees being laid off remains extremely low relative to historic levels, a signal that businesses are reluctant to cut staff considering that the labor market was tight just a few quarters ago.
Wednesday’s GDP report showed that the economy continued its solid pace of growth in the third quarter, with real GDP rising at an annualized rate of 2.8%, just below the consensus estimate at 2.9%. Growth in the third quarter was primarily driven by consumer spending, but strong business investment was a notable surprise, up 5.4% from a year earlier. The most likely explanation is that investment in artificial intelligence and semiconductors remain an outsized portion of corporate budgets. Notably, government spending was an abnormally large contributor to growth, and without its impact, GDP would have risen just 2.0%. At the same time, there are reasons to expect a slowdown in economic growth in the coming quarters. Notably, the personal savings rate dropped to 4.8% in the third quarter, below the pre-pandemic average of 7.0%. It now looks as though investors are running low on disposable income, and their ability to prop up the economy with above-trend spending and offset unsustainable business and government investment may be coming to an end.
Halloween lived up to its spooky reputation as each of the major indices saw large losses, with SPX and COMP falling 1.9% and 2.8%, respectively. The Fed’s preferred measure of inflation, PCE, rose just 2.1% in September, clearing the path for the FOMC to continue cutting rates at upcoming meetings. While the headline of 2.1% inflation was down nicely from its 2.2% prior reading and very close to the Fed’s 2.0% long-term goal, the core reading of PCE, which strips out food and energy prices, moved the wrong way. Core PCE increased to 2.7% from a year ago, while both the three and six-month annualized measures of core PCE remained at 2.3%. The fact that both headline and core PCE remain above the Fed’s goal, while the Fed is also pursuing looser policy, is concerning, in my opinion. There remains a risk that the Fed could cut rates too aggressively while both future occupants of the White House have laid out economic policies that may be inflationary in nature, leading to a reignition of price pressures.
Stocks finished the week on a positive note, as strong earnings from some major corporate names reassured investors despite the release of more concerning job data. The Labor Department reported that the U.S. economy only added 12,000 jobs in October, sharply lower than the 113,000 additions expected, and the weakest reading on this measure since December 2020. The good news is that the weak reading is likely related to ongoing strike activity, and that the unemployment rate remained at 4.1%, in line with estimates, and an indication of a relatively stable job market.
As mentioned before, the coming week will be headlined by both the general election and the FOMC meeting. Both events have the potential to move markets, but I would expect the FOMC meeting to be mostly innocuous compared to market reactions to the election. Elsewhere, we will get updates on how consumers are faring, and the third-quarter earnings season will carry on with several reports that have the potential to make broad market waves. Finally, we hope you all get out to vote on Tuesday, if you haven’t already.
| TIME (ET) | REPORT | PERIOD | MEDIAN FORECAST | PREVIOUS |
| MONDAY, NOV. 4 | ||||
| 10:00 am | Factory Orders | Sept. | -0.5% | -0.2% |
| TUESDAY, NOV. 5 | ||||
| ELECTION DAY | ||||
| 8:30 am | U.S. Trade Deficit | Sept. | -$84.0B | -$70.4B |
| 10:00 am | ISM Services | Oct. | 53.7% | 54.9% |
| WED., NOV. 6 | ||||
| 9:45 am | S&P Final U.S. Services PMI | Oct. | — | 55.3 |
| THURSDAY, NOV. 7 | ||||
| 8:30 am | Initial Jobless Claims | Nov. 2 | 220,000 | 216,000 |
| 8:30 am | U.S. Productivity | Q3 | 2.5% | 2.5% |
| 10:00 am | Wholesale Inventories | Sept. | -0.1% | 0.1% |
| 2:00 pm | FOMC Interest Rate Decision | |||
| 2:30 pm | Fed Chair Powell Press Conference | |||
| 3:00 pm | Consumer Credit | Sept. | $14.0B | $8.9B |
| FRIDAY, NOV. 8 | ||||
| 10:00 am | Consumer Sentiment |
Nov. |
71.0 |
70.5 |
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