These next eight to ten days will be quite interesting as the outcome of some events will unfold, as the Fed policy and election uncertainties will create headaches for market players.
The Fed has a meeting this week and it is widely held they will not make a move on interest rates, rather they will continue to provide clues toward a December rate hike. Whether that is good policy shift is open to debate, but certainly there is a swarm of support to hike the rate before the end of 2016. December is the last meeting of the year. While the markets are pricing in a rate hike at that meeting I have a variant view ONLY if inflation is still too low and growth continues to be anemic.
Last week, the first look at Q3 GDP was a robust 2.9%, but of course future revisions will have an effect. That is the best quarter of performance since Q2 of last year. Inflation remains subdued however, while it is trending higher we still see it well below the 2% target often cited by the committee. The price deflator, a key measure of inflation has been well under 2% since 2006. While the Fed continues to 'talk up' a rate hike, it is all lip service until all of the data has been analyzed, and there is just too much left to see before a policy change determination can be made.
The coming jobs report for October may sway Fed policy as well, as we saw a quick 180 degree turn in June after a dismal May report. Could we see that again? Not likely, as many clues and trends portray decent growth, and the market is expecting again about 175K new jobs. That would be off the strong pace of earlier in the year but may provide the Fed with the needed excuse to hike interest rates.
Finally, this long election season may finally be over next week. November 8 is a day many have been hoping would come sooner rather than later. The rhetoric, propaganda and scare tactics will reach their peak this week before the Presidential election, and with it the market volatility is likely to pick up. This happens of course when uncertainty reigns. Market players would prefer to be on the sidelines or buy protection, waiting for resolution in the short term rather than have exposure. That is not a bad idea, especially if one is looking to pick up stocks mistakenly tossed aside.
Let's hope there is a rational, logical and peaceful outcome for all of these events, as the markets look beyond.