The volatile market movements in November were primarily dominated by and reflective of geopolitical factors and concerns.
Starting with domestic matters, the US midterm election outcomes seemed to have matched broader market expectations, with the Democrats taking control of the House. Markets have historically performed well during the third presidential term, starting with the preceding midterms. And although most investors would like to see such a “seasonal” trend repeat itself, the economic and geopolitical environment surrounding the markets are anything but “business as usual,” if we can even say such a thing about markets.
The Trump administration approach to global trade, ranging from hardball to hostile, has elicited an amplified “risk on, risk off” response from investors. Markets are particularly concerned about the ramifications that the current trade dispute might have not only on global growth but also on growth in the US, as tariffs have increased costs on both companies and households.
Large firms like GM, Ford, Walmart, and Coca-Cola are feeling the impact of tariffs, as higher costs eat have begun to eat into their cost of production and/or profit margins, as some of the firms have decided to pass the increased costs onto customers. To date, GM has laid-off 14,000 employees in North America, shutting down 5 factories.
Smaller businesses, particularly in agriculture are also taking a hit. According to recent reports, 80 midwestern farms have filed for bankruptcy, the largest seen since the Great Recession. These bankruptcies appear to be part of a larger trend, meaning that more bankruptcies may be expected in the near future.
There were also other foreign political factors that may have brought some volatility to the markets, including (but not limited to) the Brexit deal between the UK and the EU and tensions between Brussels and Italy.
Overall, the effects stemming from the geopolitical environment are such that the stock markets have not been able to recover from the significant declines experienced in October.
- Rumors that China may be implementing stimulus measures to boost their deteriorating economy may have contributed to lifting global equity markets.
- US indices are up for third day in a row possibly due to a series of positive earnings reports.
- Jobless claims were at 214,000, slightly higher than economist expectations of 211,000.
- The US economy added 250,000 more jobs, contributing to the early bullishness in the market.
- Labor participation rate edged up, average hourly wages rise by $0.05, and the jobless rate remains at a multi-year low.
- Global equity markets remained optimistic following a call between President Trump and Chinese President Xi.
- Yet, Apple fell sharply on a less-than-optimistic outlook, leading the NASDAQ downward.
- Continuing trade fears, in addition to tech, may have caused the broader market to reverse mid-day, though an afternoon announcement by President Trump that a trade deal with China was underway may have contributed to lifting the markets from its lows toward the end of the day’s session.
- Markets traded in a relatively narrow range as traders anticipated the following day’s midterm elections.
- ISM non-manufacturing indexed slowed to 60.3, though higher than the anticipated 59.2 expectation.
- Job openings fell by 284,000 o 7.009 million in September, well below consensus expectations of 7.11 million.
- As traders anticipate the results of the midterm elections, the low interest rate environment may be largely supportive of today’s stock market rise.
- US indices advanced sharply as the midterm elections divided Congressional control.
- This was the sharpest post-midterm election rise since 1982.
- Historically, the third presidential term has been bullish for the stock market following midterm elections; a seasonal factor which may (or may not) be contributive to the current market.
- Consumer credit growth, at $10.9 billion, slowed below expectations of the $16.5 billion consensus.
- Initial jobless claims decreased by 1,000 though edged toward the higher end of expectations.
- The FOMC kept the federal funds target unchanged within a range of 2.00 to 2.25 percent, signalling another rate hike in December.
- Markets were relatively unchanged at the end of the day.
- Energy market stocks tumbled as US crude oil futures entered a bear market.
- S&P 500 along with the Nasdaq Composite ended in the red while the Dow continued its winning streak.
- Fears of a slowing global economy plus ongoing European political uncertainties contributed to US indices moving lower.
- Apple shares fell, and with no economic reports on this day (US Veterans Day) bullish traders and bargain hunters remained on the sidelines.
- US indices started moving toward the upside as reports that the US and China talks were moving along sparked some optimism in the markets.
- Stocks quickly reversed, however, as falling oil prices raised the fears of slowing global economic growth.
- Budget deficit at $-100.5 billion fell slightly lower than expectations though it remains 59% larger than the $-63.2 billion deficit from October of 2017.
- Headline inflation came in at the consensus at 0.3%. The core rate, excluding energy and food, came in as expected at 0.2%.
- Jerome Powell spoke, emphasizing once again that gradual rate hikes are central to the Fed’s commitment toward maintaining and extending the current economic expansion.
- Stocks were attempting to regain ground from the previous day’s decline but the continuing slide in crude oil prices brought indices down with it.
- Indices recovered from the previous 4-day slide after a slew of favorable economic data.
- Jobless claims increased by 2,000 for the week ending November 10; a steady and favorable, albeit higher, rate.
- Retail sales at 0.8% surged beyond the consensus range of 0.5% to 0.7%%.
- the Empire State Manufacturing index came in stronger than forecast at 23.3, despite higher input costs.
- Industrial production report came in within the consensus range for production, manufacturing, and capacity utilization. The gain for manufacturing led by business equipment and construction supplies is the good news in today’s report and points to a healthy conclusion for what has been a positive 2018 factory sector.
- Vice President Mike Pence’s comments on Sunday that there will be no end to US tariffs on $250 billion of Chinese goods unless China changes its ways contributed to Monday’s market plunge.
- The Dow Jones fell 400 points, as tech behemoths Apple, Amazon, and Facebook drag down the Nasdaq Composite.
- The housing market bucked lower significantly. With consensus range between 66 to 69, the November Housing Market Index report logged in at 60.
- Although yesterday’s housing market index surprisingly plummeted, today’s Housing Starts came within expectation at 1.228 M with consensus expectations ranging between 1.180 to 1.269 M.
- CNBC released its Global CFO Council survey–representing CFOs from the largest companies in the world–in which over 50% had expectations that the Dow may fall an additional 2,000 points before the market sell-off ends.
- The Dow slid another 600 points, completely erasing its 2018 gains.
- With rate hikes expected in December, the biggest concern among most financial institutions is the uncertainty caused by the ongoing tariff-driven trade war; this in addition to the political uncertainty in Europe and the overall slowing growth in the global economy.
- Durable Goods report is expected to come in at -2.4% for new orders, 0.4% ex-transportation, and 0.3% for core capital goods.
- New jobless claims is expected to come in at 215K.
- Consumer sentiment is expected to come in between 98.0 to 99.0.
- Consensus for existing home sales is expected at 5.210 M.
- Happy Thanksgiving!
- No economic reports today.
- Indices higher following equities in Europe which, in turn, are higher on news that Italy and the EU may compromise on a budget deficit target.
- Stocks are also higher due to optimism surrounding the Trump-Xi talks in Buenos Aires on November 30.
- October Fed national activity index came at 24, higher than the expected 20.
- Indices fell early in the trading session after President Trump announced that he may move ahead with raising tariffs on $200 billion in Chinese imports.
- Stocks recovered later in the day when the Fed stated that the current interest rates are closer to what they would consider the “neutral rate,” also mentioning that inflation appears to be contained despite the robust economic growth.
- Index futures surged when Fed chair Powell delivered dovish comments on monetary policy at the Economic Club of New York.
- Powell reaffirmed the Fed’s position that US interest rates are just below neutral levels and that the Fed will remain data responsive, meaning that there is no set path for adjusting interest rates.
- The Fed will likely hike rates in December but that starting in January of 2019, all rate adjustments will be determined in response to economic data.
- Personal consumption expenditures increased by 0.6% in October, the largest monthly increase since March.
- Personal income rose by 0.5%, the largest gain since January.
- Markets had a limited response to Trump’s comments on tariffs, saying that there was still a long way to go in negotiating with China and urging US companies to build products in the US.
- Chicago PMI came in at 66.4, far above consensus expectations of 58.0. New orders surged to their best in over four years, along with a solid pace of production and hiring.
- Markets await Trump-Xi talks in Argentina.
Market Strategist | Halifax America
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