Just when we were gearing up for the end of the contentious election that takes place on November 8th, there was yet another round of madness about Hillary Clinton’s emails on Friday that raised more uncertainty about an already uncertain election. The FBI reopened its investigation into some of the mess, which seemed to create the negative mood that sent stocks lower on Friday. For the week, the Dow was basically flat, the Nasdaq was down 1.3% and the S&P 500 edged 0.7% lower. This leaves a big question as to whether we will see a post-election bounce, given we can just get past an election that has most voters feeling exhausted.
The good news on Friday was the 2.9% rise in third quarter GDP that topped estimates of a 2.6% increase. GDP was also up from the second quarter’s 1.4% rise, and that had economy watchers giving a big “thumbs up,” even though most of the increase was the result of inventory growth and foreign trade. It still was an improvement, though, and we were due for some positive economic news for a change. Amazon (AMZN) finished the day 5.2% lower after missing earnings estimates, and its surprise shortfall helped weigh on technology and the broader Nasdaq. Overall, it was a fairly tough week for investors, as earnings continue to come in good, but not all that great.
Investors were a bit disappointed on Friday by a weak consumer sentiment number for October that fell to 87.2 versus the expected 88.5. This number was down from the previous 87.9, and it was disappointing for bulls to see consumer optimism waning. It seemed as though consumers might be gaining optimism with the thought that the election would soon be over, but there is clearly some sense of worry for America and the broader economy as we head toward November and December. These are normally bullish months for stocks with the Thanksgiving Rally, the Santa Claus Rally, and the New Years Rally, but for the time being, investors and consumers remain cautious.
Halloween is on Monday, and that means that we have somehow made it through the historically rough month of October without any crashes or burns, and that is a big plus for investors. The Federal Reserve can sometimes say “spooky” things, but as we have all noticed, the Fed Heads have been very quiet of late. The Fed likes to avoid politics, and with the election right around the corner, Fed officials have been very, very quiet. This will likely continue through the election, so in some ways, maybe that is a good thing not to talk about a December rate hike that the Fed seems to want to make as we head toward the New Year.
The Fed has said endlessly that it will remain “data driven,” and the 2.9% GDP number supports the “data” the Fed needs for a December rate hike. The Fed will also be looking closely at next Friday’s employment number, since it has used that number a lot in the past to make the case for a rate hike. Economists are looking for 195,000 new jobs for October, which would be up from September’s lackluster 156,000, so we will see what happens. Unemployment levels are expected to dip to 4.9% for October versus the 5.0% level we saw in September. So again, Friday’s jobs report will be a very “high profile” report in terms of what the Fed decides on interest rates at its December meeting.
Keep in mind that the near-zero interest rate policy from eight years ago was supposed to be “temporary,” but temporary can often become permanent. Economic scholars have commented that zero or even negative interest rate policies have never really existed in capitalism, and some of these “scholars” say that they have no idea where these policies eventually lead. The problem with raising rates, though, is that rate hikes can torpedo stock and bond markets around the globe. This should make for an interesting December to say the least, but keep in mind that with the election on November 8th, November could be very interesting as well. Keep your seat belts fastened tightly!
That said, the Gorilla wishes each and all a restful autumn weekend. The World Series is in full swing as is football season, and it is a fun time of year despite our country’s many challenges. As long as the election plays out respectfully (and unrigged), we really could see a relief rally in the stock market. The Fed might rain on that parade with a December rate hike, but at least we are in the neighborhood of all-time highs for the major indices. Again, the Gorilla wishes each and all a wonderful weekend, and we will be back in action on Monday. The Gorilla is looking forward to Halloween, and he is hoping he does not get any “Creepy Clowns” showing up at his treehouse. Have a great weekend!
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