What’s on Tap: Volatile Headlines Create Volatile Markets

WOT Blog Graphic Template 11.5.2018.png
  • Job Growth Remains Strong With 3.7% Unemployment Rate

  • Inflation, the Fed and Politics: Volatility to Remain Elevated

  • Looking Ahead to Midterm Elections and Economic Data

Investors may have welcomed November with open arms after October’s particularly difficult month of losses, but Friday’s market volatility showed that the daily battle between buyers and sellers is far from over. While much ado has been made about October’s losses reflecting the worst monthly performance for the S&P 500 in more than seven years, we were not surprised to see anxiety levels rise nor to see prices fall as vitriol rose ahead of the heavily contested midterm elections.

For the year through Thursday, the Dow has returned 4.5%, while the broader S&P 500 has gained 4.1%. The MSCI EAFE index, a measure of developed international stock markets, is down 8.7%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has climbed to 3.59% from 2.71% at 2017’s end. On a total return basis, the U.S. bond market has declined 2.3% for the year.

Job Growth Remains Strong With 3.7% Unemployment Rate

Employers created 250,000 jobs in October and the headline unemployment rate was unchanged at 3.7%. That’s the good news. Even better is that workers’ wages increased 3.1% from the same time last year—the best year-over-year growth since 2009. The tight job market and the pick-up in economic growth this year means companies are having to pay more to hold on to and recruit qualified workers.

With wages on the rise, it’s not surprising that U.S. consumer confidence hit another 18-year high in October. Apparently, consumers were unfazed by declining stock prices and the approaching midterm elections. The one thing consumers don’t seem to be buying is all the headline pessimism.

Heading into the holiday shopping season, the American consumer is well-equipped to continue driving the economy’s growth. And, as we’ve said time and again, it remains a fool’s errand to bet against a fully employed U.S. consumer.

Inflation, the Fed and Politics: Volatility to Remain Elevated

Prices are on the rise. Higher wages and rising raw material costs are leading some companies to hike prices on goods and services. While we’ve seen inflation tick up over the past few months, the increase hasn’t been dramatic.

The personal consumption expenditures price index, the Fed’s preferred gauge of inflation, rose just 2.0% over the past year through September—the lowest inflation reading since February. That’s spot on policymakers’ professed 2% target rate. This suggests to us that there is very good reason for another 0.25% hike to the fed funds rate in December.

That said, we are cognizant that a sea change in post-midterm Congressional majorities could have dramatic impacts on, for example, current tariff plans and policies. Come what may, we think the Fed will remain vigilant and focused on a mandate to safeguard our slow-growth-not-no-growth economy from either overheating or recessing.

How positively or negatively traders will respond to the midterm election results is anyone’s guess, particularly after the host of bad predictions following 2016’s presidential contest. However, no matter which party prevails, we expect market volatility to remain elevated throughout the remaining months of this year.

Looking Ahead to Midterm Elections and Economic Data

While the midterm election and its aftermath will consume most of the oxygen next week, we’ll also be looking at hard data on the always critical service sector, inflation, job openings, consumer credit and consumer sentiment. 

If you’d like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com.

Please note: This update was prepared on Friday, November 2, 2018, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. 

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. 

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