- Election uncertainty continues to weigh on stocks. In a repeat of yesterday’s early action, domestic equities are little changed while overseas markets are lower as the upcoming U.S. election has traders on edge. Tuesday’s session saw a late-day rally, but major indexes failed to fully recoup losses suffered throughout the morning, leaving the S&P 500 down 0.7%. In the end, 10 of 11 sectors finished lower, with rate-sensitive telecom and utilities the laggards, while energy was the lone gainer despite further declines in the oil patch. Foreign traders are navigating a sea of red in Wednesday’s session, spurred mostly by election uncertainty. In Asia, the Nikkei (-1.8%), Shanghai Composite (-0.6%), and Hang Seng (-1.4%) all closed lower, while Germany’s DAX (-0.7%) and France’s CAC (-0.6%) are among the worst performers in Europe in afternoon trading. COMEX gold and Treasuries are benefitting from the risk-off posture; the yellow metal is up near 1.4%, back above $1300/oz., while the yield on 10-year notes is down three basis points to 1.80%. Meanwhile, WTI crude oil continues to slide ($45.70/barrel) on the heels of a surprise build in U.S. stockpiles.
- Under new methodology, ADP employment report continues to suggest tightening labor market. Until recently, ADP-the nation’s largest payroll processing firm-used only its database of payroll data to make its estimate of private sector employment each month. A few years ago, ADP started adding other, publicly available data on employment to supplement its forecast, and effective as of today’s report, added oil prices, initial claims, consumer sentiment and the LEI. The October reading said that the economy created 147,000 new private sector jobs, fewer than expected by the consensus of economists as polled by Bloomberg (+165,000). But the September reading on ADP-originally reported as a 154,000 gain was revised sharply higher to show a 202,000 increase. The ADP report-once a key input for making forecasts of the BLS’ jobs report-has faded recently as a forecasting tool, as it no longer relies on just its own, proprietary information.
- October vehicle sales exceed expectations, despite rancor around the election. Consumers and business owners (large and small) have cited uncertainty around the election in recent months as a reason for being cautious on spending and investment plans, but the October sales data suggest that consumers are spending on new cars and trucks despite their concern over the election. At 18.3 million, the annualized sales rate in October was well above expectations (17.6 million), above the September reading (17.7 million), and importantly above the Q3 sales rate of 17.5 million, getting Q4 consumer spending off to a strong start. While there is still a long way to go, Q4 2016 gross domestic product (GDP) is tracking to around 2.5% after the 2.9% gain in Q3 2016.
- Is it holiday shopping time already? It sure is. The National Retail Federation expects retail sales for November and December (excluding autos, gas and restaurants) to increase a solid 3.6% to $655.8 billion. Online sales are forecast to increase 7-10% over last year to as much as $117 billion (18% of total). Still-low prices at the pump, low interest rates, steady overall job and wage gains, and sturdy home values are supportive, although the stock market’s mixed performance over the past three months and election uncertainty may dampen consumer spending. We maintain our cautious outlook on both consumer sectors as noted in our Portfolio Compass publication, with the mid-to-late stage of the business cycle our biggest consumer discretionary concern.
- The best six months of the year. The November to April timeframe is historically the strongest six months of the year for the S&P 500. Going back to 1950, these six months have averaged 7.1% and been higher 77.3% of the time. Looking at all other six month combinations, this is the strongest, while the May to October period is the weakest. Additionally, the next six months have performed well based on the four-year presidential cycle. Today on the LPL Research blog we will take a closer look at this phenomenon.
- Down six days in a row. The S&P 500 fell again, and is now down six consecutive days. This is the first six-day losing streak since August 2015 and the China devaluation concerns. The S&P 500 hasn’t been down seven days in a row for nearly five years, last happening in late November 2011. What is interesting about this recent six-day losing streak is the S&P 500 is down only 1.84%. The average six-day drop for the S&P 500 has been just over 5%. In other words, this sell-off has held up rather well.
- The streak is over. As we’ve noted many times the past few weeks, the S&P 500 has been very close to its all-time high for several months. In fact, yesterday ended a streak of 87 consecutive days the S&P 500 had closed within 3% of its all-time high. That was the longest such streak in 20 years; a streak of 241 days that ended in early 1996.
- ISM Non-Mfg. (Oct)
- UK: Bank of England Meeting (No Change Expected)
- Employment Report (Oct)
- Lockhart (Dove)
- Fischer (Dove)