Jittery stock traders keep an eye on the 4 days that will spell the fate of the market
(Bloomberg) – Investors have had a busy week, faced with dizzying earnings from some of America’s biggest companies as well as a pile of uncertain economic and geopolitical news. But what’s to come could be even worse.
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In just seven trading sessions, there will be four major events that could shape the market’s outlook for the rest of the year – and potentially prompt a quick turnaround in the face of confounding expectations.
On November 2, the Federal Reserve will announce its latest interest rate decision and offer hints about its way forward, which could signal plans to ease the aggressive pace of increases. is threatening to push the economy into recession.
Two days later, the October jobs report will provide a key look at how hiring is slowing. Then, on November 8, midterm elections could usher in a shift in which the party controls Congress. And finally, on November 10th is the consumer price index, a report that has played a key role in shaping expectations for the Fed’s path since inflation returned to four-decade highs. .
Throw in the ongoing earnings season and the Bank of England rate decision on November 3, and it’s clear why some on Wall Street are bracing for a fresh wave of volatility.
Here’s what investors are paying attention to in each of these events.
Decide on the FOMC . ratio
Wall Street views the fourth consecutive 75 basis point rate hike on November 2 as a certainty. What the Fed signals will happen next makes much more sense, with traders increasingly betting that the central bank will start slowing down in December. The Bank of Canada has already done just that. on Wednesday, providing a potential opportunity for other central banks to follow suit as recession risks mount.
Traders are bracing for larger-than-usual price changes on November 2 and November 10, judging by options expiring in the next two weeks. For SpotGamma founder Brent Kochuba, the Fed’s rate decision is the most important of the upcoming events and sets the stage for how subsequent data releases will affect the market. .
“For volatility traders, it’s the Fed first, everything else second. “If monetary policymakers come up with an adjustment approach, that would alter expectations of volatility in a big way.”
Working day
The October jobs report, released Friday, is expected to show the unemployment rate rising from 3.5% to 3.6%, up from a half-century low. Nonfarm payrolls growth is expected to slow to 190,000 from 263,000 in September, but that still shows continued strength in the labor market.
Thursday’s initial jobless numbers showed the job market remained tight, while the initial report on third-quarter GDP showed the economy was still on a strong track, both with shows it can weather large-scale rate hikes. A stronger-than-expected jobs report for September sent the S&P 500 Index down 2.8% on October 7, the worst job day shown since the summer of 2010. A bullish surprise could raise hopes that the Fed will return to raising its rates by half a percentage point in December.
Midterm elections
Stock bulls are hoping for a key outcome from the US midterm elections: a divided Congress. Why? Because stocks tend to benefit from the stalemate in Washington as it tends to generate little if any major policy changes.
The two most likely outcomes of this midterm cycle – a Democratic president with the House and Senate Democrats or a Democratic president with the entire Republican Congress – have benefited the parties. equity investors in the past. In each scenario, the S&P 500 has posted annual gains between 5% and 14%, according to Comerica Wealth Management, citing data from Strategas Research Partners.
“Stocks perform best in a divided government,” said Victoria Greene, chief investment officer at G Squared Private Wealth. “Balance of power and deadlock is what the market likes.”
Inflation Report
Some economic releases this year are more important than the consumer price index, as reducing inflation is a central priority for the Fed. Strategists at Barclays Plc, who have charted the performance of the S&P 500 against 10 major economic indicators, find that over the past decade, stocks have never reacted negatively to any of the economic indicators. the current economic situation for the CPI.
Scott Ladner, chief investment officer at Horizon Investments, said: “We may have some clarity by the end of the fourth quarter on whether inflation will slow and whether the Fed will ease off on rate hikes. no,” Scott Ladner, chief investment officer at Horizon Investments, said in a phone interview. “That could then induce calm in the Treasury market and spur investors to take risks in the equity markets again.”
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