Investment Insights: Halloween isn’t the only thing spooking markets

Wade Balliet
Posted by Wade Balliet
Investment Strategy

This weekly report presents insights from our Global Investment Management team.

Closeup on 5-dollar bill with cracks on it and some autumn-colored leaves partially blocking Ben Franklin's face.Whether it’s the new revelations surrounding the election or spooky skeletons, the markets didn’t react well to the frights of Halloween night. After a brief climb in the early morning Tuesday, the S&P 500 Index declined to an intraday low, losing 1.58%, before recovering and ending the day down 68 basis points. It seems anxiety is creeping back into the markets as stories unfold with Election Day just around the corner.

Despite the political scares, Americans were apparently enjoying Halloween festivities. According to data from the National Retail Federation, U.S. consumers were projected to spend $8.4 billion, the highest recorded since the survey started 11 years ago.

Consumers may be feeling a bit better about the economy with all that Halloween spending. The Bureau of Economic Analysis released its advance estimate for real GDP growth showing 2.9% for the third quarter; keep in mind that last quarter’s growth was 1.4%. An analysis from Bank of the West Economics showed the bump in growth likely came from a steep improvement in net exports during the month of September, along with gains in consumer spending; they forecast fourth quarter growth to slow to a 1.65% pace. Important economic releases to watch out for this week include productivity metrics, factory orders, and employment – the Fed will be keeping a close eye on these as well.

As we discussed last week, the Federal Reserve concluded its November meeting Wednesday and, as expected, no action was taken; however, we may see even more blunt and direct language regarding a December hike in the coming weeks. While making a move in November could have been politically precarious, it seems the Fed has been at the ready to lift rates based on recent data. Earnings growth was also a key discussion last week; and we seem to be on pace for a positive, albeit barely positive, increase in earnings growth for S&P 500 companies reporting this season. Don’t get your hopes too high, as it may be a close one. As of yesterday’s market close, 340 companies had reported and posted a 36 basis point increase in earnings over last quarter – this includes 22 of the 34 energy companies in the index, which saw a 63% decline in earnings over the same period, according to Bloomberg.

We will be keeping a watchful eye on the Fed over the next few weeks, as a speech or an additional statement could provide some much-needed clarity on the path for rates in the next 12 months. Economic growth and, hopefully, company earnings seem to be improving, but headline risk remains in the markets. Not to mention European geopolitical risk – the Italian referendum being the most prominent – and growth uncertainty in China will be key factors going forward.

Chart showing recent market results.

Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.

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