These next eight to ten days will be quite interesting as two major events unfold: the much-anticipated Fed meeting this week and the 2016 election next week. These events are creating market uncertainty and massive headaches for market players. Let’s take a look at the impact each event is having on the markets:
The Fed Meeting
When the Fed meets this week, it is widely believed that they will not make a move on interest rates. Instead, they will continue to provide clues on whether or not they’ll hike rates in December. Whether a rate hike is a good policy shift is open to debate, but certainly there is a swarm of support in favor of it. While the markets are already pricing in a rate hike, I have a variant view ONLY if inflation is still too low and growth continues to be anemic.
Last week, we learned that Q3 GDP was a robust 2.9%, but of course future revisions will have an effect. That is the best quarterly performance since Q2 2015. Inflation remains subdued, and even though it is trending higher, it sits well below the 2% target often cited by the Fed committee. The price deflator, a key measure of inflation, has been well under 2% since 2006.
The coming jobs report for October may sway Fed policy as well. Remember that quick 180 degree turn they did in June after a dismal May report? It’s not likely we’ll see that kind of reaction again, as many trends portray decent growth. Plus, the market is expecting about 175K new jobs. That would be off the strong pace of earlier in the year, but it may be enough for the Fed to hike interest rates.
While the Fed continues to “talk up” a rate hike, it is lip service until all of the data has been analyzed.
Finally, this long election season is nearly over. November 8 is a day many have been hoping would come sooner rather than later. Unfortunately, the rhetoric, propaganda and scare tactics will reach their peak this week, and market volatility is likely to pick up as a result.
Market players will prefer to be on the sidelines, and those that are in will be buying protection. 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 and peaceful outcome for both of these events – for our mental health and to relieve the market uncertainty.
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