Bulls were thinking that the eight-day losing session for the S&P 500 might finally come to an end of Friday, but a late-day fade left the S&P 500 down by about 3 points, or by 0.2%, to notch a ninth-straight day of declines. The eight-day streak was the first since the 2008 financial meltdown, but NINE days down for the S&P 500 has not occurred since December 1980! The good news is that the S&P 500 is only down a little over 3% in this nine-day streak, but the bad news is that it is difficult to pinpoint the reason. Uneasiness surrounding the election on Tuesday is probably the main factor, but we did get a very lackluster employment report on Friday.
October’s non-farm payroll report showed 161,000 new jobs having been created in October, and that number was down from September’s 191,000 and also below expectations of 175,000. The unemployment rate fell to 4.9% from 5.0%, but overall, the report was “sub-par.” Fed watchers think that it is still a solid enough number, though, to give the Fed the rationale for the December rate hike that they have been hinting at for months. Investors generally panic at the thought of rate hikes, so maybe a lower jobs number would have been more bullish for stocks on Friday.
The ongoing worries about a possible December Fed rate hike are likely part of the reason for the the market’s recent slide. Granted that the Fed made fairly dovish comments this past week. However, there are still concerns that the “data driven” Fed will take Friday’s report and run with it toward a rate hike. The last rate hike was LAST December, and we all know that the S&P 500 fell 10% following that rate hike. Even though the current stock market SHOULD be able to handle a quarter-point hike, there is a tendency for the stock market to over-react.
Aside from the Fed and economic numbers, though, we all know that the “Elephant In The Room” is Tuesday’s election. Anyone following this drama closely knows that the polls and momentum seem to change daily. The race has clearly narrowed, and while Clinton seems to have the upper hand, the ongoing FBI scandal and email releases are damaging her in the polls. This whole race is creating uncertainty in the stock market, and it is no wonder that buyers have stepped back over the past nine days to just “wait and see” what happens.
Even if the Fed is comfortable with economic data to justify a rate hike in December, the Fed would probably ditch the rate hike in a blink if the stock market remains under pressure. In many ways, the Federal Reserve is not so “data driven,” but rather, it is “stock-market driven.” Unless we get that post-election bounce in the stock market, all bets could be off for a Fed rate hike. If the Fed wants to stoke the stock market’s fire, we all know that all it needs to do is wheel out a few Fed heads to make it clear that no rate hike would be likely in December.
This would be the bullish “catalyst” that could help the Thanksgiving and Santa Claus Rallies kick in, and we would be off to the races through the end of the year. The “wild card” right now, however, is the election. A delayed conclusion like we saw between Bush and Gore in 2000 could wallop stocks. There are several states that are so close that there could be legal challenges by the armies of election attorneys that BOTH parties seem to be massing for battle, just in case there are voting “problems.” It would be best for the country and the stock market if we could just get a “winner” and move forward from this LONG election season.
The good news is that the recent pullback has been calm and cool with no big collapse-type days, which might even be part of a healthy pullback for a seven-year bull market that is unwilling to throw in the towel. That said, have a restful and eventful first weekend of November. Fall is in full color, and winter is right around the corner, so enjoy your weekend. We will be back in action on Monday, and the Gorilla wishes all a great weekend!
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