Fed meet­ing in sight but election looms for stocks

Kuwait Times - - BUSINESS - NEW YORK:

WALL STREET WEEK AHEAD

The Fed­eral Re­serve meets next week and the US gov­ern­ment re­leases an im­por­tant re­port on jobs, but in­vestors could be for­given for hav­ing some­thing else on their minds.

The heated US pres­i­den­tial cam­paign, which for months has grabbed the bulk of US news head­lines, en­ters its fi­nal stretch next week be­fore the Nov. 8 vote, and the race be­tween Demo­crat Hil­lary Clin­ton and Repub­li­can Don­ald Trump of late has pro­vided mar­ket-mov­ing sur­prises.

In the lat­est re­minder of how an up­set in the ex­pected out­come could rat­tle in­vestors, news came on Fri­day that the Fed­eral Bureau of In­ves­ti­ga­tion is re­view­ing fresh ev­i­dence in its probe of Clin­ton’s email server. That briefly pushed stocks down sharply and drove the CBOE Volatil­ity In­dex - Wall Street’s fear gauge - to a two-week high.

“We’re so close to the election, and the pots are boil­ing. There’s al­ways some­thing go­ing on,” said Bucky Hell­wig, se­nior vice pres­i­dent at BB&T Wealth Man­age­ment in Birm­ing­ham, Alabama.

“And where there’s un­cer­tainty with the Oval Of­fice, it seems to his­tor­i­cally cause prob­lems for the mar­ket.” Wall Street has been ex­pect­ing Clin­ton to win her White House bid but Repub­li­cans to re­tain at least the US House of Rep­re­sen­ta­tives, es­sen­tially keep­ing the cur­rent state of po­lit­i­cal grid­lock.

In re­cent weeks, Clin­ton’s lead has widened in polls, caus­ing some con­cern about the Democrats po­ten­tially win­ning con­trol of both the pres­i­dency and Con­gress. “That would be bad for cer­tain sec­tors in­clud­ing health care and per­haps the fi­nan­cial sec­tor,” said Ed Campbell, a port­fo­lio man­ager at QMA, a multi-as­set man­ager owned by Pru­den­tial Fi­nan­cial. “But I don’t think that’s likely to hap­pen.”

In­vestor ex­pec­ta­tions also are low that the Fed will raise in­ter­est rates when it meets Tues­day and Wed­nes­day, es­pe­cially since the meet­ing falls just days ahead of the election. The chances ap­pear to be less than 10 per­cent that the Fed will raise rates next week, while there’s about a 75 per­cent chance the Fed will hike rates in De­cem­ber, ac­cord­ing to the CME Group’s FedWatch tool on Fri­day.

“I think it’s largely go­ing to be a non-event,” Campbell said. “They’d be loath to sur­prise the mar­ket, es­pe­cially one week be­fore the election.” What could shake equities, how­ever, is any com­ment from the Fed that could in­di­cate the pos­si­ble tim­ing of the next hike.

At the Fed’s Novem­ber meet­ing last year, it tweaked its pol­icy state­ment to specif­i­cally ref­er­ence the next pol­icy meet­ing as a date of a pos­si­ble rate lift-off, a move that grabbed in­vestors’ at­ten­tion. The Fed then in De­cem­ber raised rates for the first time in nearly a decade.

If it’s strong enough, Fri­day’s jobs re­port could bol­ster al­ready broad ex­pec­ta­tions that the Fed will raise rates again this De­cem­ber. Econ­o­mists polled by Reuters show ex­pected non­farm job gains of 175,000 for Oc­to­ber, up from 156,000 the pre­vi­ous month. “Post-election day, you might see a lit­tle bit of re­lief but then you start wor­ry­ing about the Fed,” said Steve Chi­avarone, port­fo­lio man­ager at Fed­er­ated In­vestors. — Reuters

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