Presidential Election & Federal Reserve meeting have market anxious…
- The Presidential election is finally here, and the race remains a dead heat with pollsters saying the race is a coin toss. Given how close the race is, a winner is not anticipated to be known for days. However, investors have been trying to position their portfolios based upon their expected winner. With the race being so close, this is likely a fool’s errand.
- The leaders of the US central bank are set to meet this week, their second to last meeting for the year. Currently, the market is predicting a near certainty, a 98% chance, for a quarter percentage point rate cut thus reducing overnight interest rates to a range of 4.50%-4.75% from its current range of 4.75%-5.00%. Overall, economic activity remains promising.
- The latest GDP readings had the economy has growing by a 2.8% annualized rate of growth over the last quarter. Inflation has continued to decline with the latest PCE reading in September of 2.1%, almost achieving the Fed’s 2% goal. On the downside, employment reports for August and September were revised lower, and payroll growth in October is expected to be much weaker, emphasizing that wage growth is cooling. A primary contributor to the negative payroll/jobs data has been the ongoing Boeing strike which was just resolved this morning.
- Meanwhile, equity markets continue their ascent on the back of modest 3rd quarter earnings growth while bond markets have proven to be more volatile. The US Treasury 10-year yield, the benchmark for the corporate bond market, has risen 18% in the last two months to 4.30%. This is a result of the bond market anticipating slower and fewer rate cuts than what the Federal reserve anticipated and concerns over the inflationary impact of the proposed policies of the two presidential candidates. Expectations are for elevated volatility in coming weeks as additional clarity on the incoming presidential Administration and the Fed’s direction is found.