Stocks continued to lose ground as the markets moved into November, weighed down by anxiety about tomorrow’s U.S. presidential election and what many anticipate is the near-certainty of the first Federal Reserve interest rate increase in a year.
On Friday, the S&P 500 looked like it was about to break its string of eight straight losing sessions before sliding into negative territory in the last half hour of trading, ending in the red to record its longest losing streak since 1980. For the week, the index was down nearly 2% while NASDAQ was off almost 3%. The Dow fell 1.5%. But bonds rebounded, with prices rising after suffering their worst month this year. The yield on the benchmark 10-year Treasury note ended the week at 1.78%, down seven basis points for the week.
Stocks were down even more outside the U.S. The Stoxx Europe 600 fell 3.5% but the major national indexes did even worse, as Germany’s DAX index fell more than 4% and Italy’s MIB index dropped nearly 6%. U.K. stocks fell 4.3%. A British court ruled that Prime Minister Theresa May can’t start the Brexit process without approval from Parliament, making it more difficult for her to pursue a “hard” exit from the European Union. An appeal is slated for next month. Japanese stocks, which had been on a roll recently, lost ground for the first time in a month, the Nikkei 225 falling 3.1%. The Bank of Japan took no action at last week’s meeting. But Chinese stocks rose for the fourth straight week, the Shanghai composite climbing 0.7%.
As expected, the Fed left interest rates unchanged at last week’s meeting but appears to be moving closer to raising interest rates at its next meeting in mid-December. In its post-meeting announcement, the Fed said the case for a rate hike “has continued to strengthen,” yet “decided, for the time being, to wait for some further evidence of continued progress toward its objectives.” It’s likely that the Fed chose to do nothing in order to avoid making a decision just a week before the election, which could be interpreted as “political” no matter what it did. Indeed, the statement included a fairly bullish assessment of the economy, noting that “the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year.” Ordinarily, that should have been enough to convince the Fed to act now. Two members who wanted to raise rates immediately dissented from the vote, down from three dissenters at the previous meeting.
Last week’s reports mostly backed up the Fed’s optimistic view of the U.S. economy. The October jobs report came in at the low end of Wall Street forecasts, with nonfarm payrolls rising by 161,000 versus the consensus estimate of 178,000. But that was offset by a strong upward revision in September’s figure to 191,000 from 156,000. In addition, average hourly private-sector earnings rose 2.8% compared to a year earlier, the strongest annual growth rate since June 2009. Elsewhere, consumer spending rebounded 0.5% in September after falling 0.1% the prior month while personal income rose 0.3%. The Institute for Supply Management’s purchasing managers’ indexes were both well in expansion territory in October: the non-manufacturing index slipped to 54.8 from 57.1 the prior month but the manufacturing gauge rose slightly to 51.9 from 51.5. Separately, factory orders rose 0.3% in September while construction spending fell 0.4%.
Reports/dates/facts/links worth paying attention to over the next week:
1. November 7: Consumer credit for September.
2. November 8: U.S. presidential election.
3. November 10: Weekly unemployment claims.
4. November 11: U.S. banks and Federal Reserve closed in observance of Veterans Day, equity markets open; University of Michigan consumer sentiment index for November, first reading.