Market Update: Friday, November 4, 2016

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  • Jobs report a slight miss, but focus remains on election. As a sign of the markets’ nearly singular focus on the pending U.S. presidential election, major indexes are showing little reaction to this morning’s nonfarm payrolls report, which was largely viewed as the last major hurdle to a potential rate hike at the Federal Reserve Bank’s (Fed) December meeting, pending unforeseen circumstances. With stocks moving lower at the open, the S&P 500 may fail to snap an eight-day losing streak, now the longest since 2008, following yesterday’s session in which it shed another 0.4%; dragged lower by the heavily weighted healthcare and technology sectors. Foreign indexes are red across the board with the Nikkei (-1.3%) leading losses in Asia, closing at its lowest level in two weeks after traders dismissed a strong service sector report, instead focusing on currency strength and the upcoming U.S. election. The Shanghai Composite was off 0.1%, though it managed a 0.7% gain for the week. European stocks aren’t faring much better in afternoon trading; the regional Stoxx 600 is down 1% and poised for its worst weekly performance since February. Meanwhile, WTI crude oil ($44.25/barrel) continues to slide, down another 0.8%, COMEX gold ($1302/oz.) is in the red despite the risk-off mood, and the yield on 10-year notes is falling, near 1.80%

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  • Week ahead. It’s all about the election next week, as the domestic economic data calendar is quiet after the busy week. There are a few Fed speakers next week, and a number of second-tier central bank meetings. China will release its dataset for October next week, and Japan will release its Q3 gross domestic product (GDP) data, as will Malaysia and the Philippines.
  • October jobs report keeps Fed on track for December. The U.S. economy created 161,000 net new jobs in October, the unemployment rate fell to 4.9%, and average hourly earnings–a key gauge of wage pressures–accelerated to 2.8% year over year from 2.7% in September. Although the headline job count was slightly below expectations (173,000), the September reading was revised up by a whopping 35,000. The details of the report were solid but not spectacular. On balance, the report shows that the labor market continues to tighten and push up wages, keeping the Fed on track to hike rates in December.
  • Equities down again. The S&P 500 was down for the eighth consecutive day. The last time this happened was in October 2008, and June 1996 before that. Interestingly, both of those years were election years. The last time it was down nine straight was December 1980. The longest losing streak ever for the S&P 500 was 12 in a row in May 1966. The last time the S&P 500 was red all five days of the week was in May 2012. It could happen today if equities slip once again.
  • Could there be a big pullback after the election? With investors extremely nervous, some investors have growing concerns that we could see a big sell-off after the election is over. Going back to the 1952 election, the S&P in November and December has been up an average of 2.5% and higher 75% of the time. Additionally, November has closed the month beneath the low of October only five times since 1950. Incredibly, December has closed beneath the low in November only once in the past 66 years. Last, the average pullback from the close in October to the end of the year is 3.3% in an election year. Could there be a large drop before the end of the year? Of course, but history would say late-year sell-offs in elections years are very rare.

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