Stocks Rise Amid Midterm Elections, With Inflation Data in Focus

In front of the midterm elections and a crucial October inflation data later this week, stocks are nudging up on Monday thanks to a weaker US currency and a decline in Treasury bond yields.

As investors anticipated another crucial week for domestic markets amid doubts about the Federal Reserve’s willingness to continue raising interest rates, U.S. equities futures rose on Monday, while the dollar fell against a basket of currencies and the yield on the 10-year Treasury note declined.

The October jobs report last week’s modestly softening wage pressures, along with the Fed’s statement following its fourth 75 basis point rate hike last week, have at least partially raised the possibility that the Fed could start lowering the pace of its anticipated rate hikes starting next month.

Although Fed Chair Powell made an effort to temper those expectations last week, saying it was “premature” to discuss a change in strategy, markets are likely to pay close attention to the seven Fed officials scheduled to give public speeches this week to provide clarification on the central bank’s messaging.

Now that the third quarter earnings season is coming to a close, and investors are getting more apprehensive over the market’s capacity to extend its brief October rise into the final months of the year, the need for clarity is even more crucial.

According to the closely watched ‘Flow Show’ report from Bank of America, fund managers invested $62.1 billion in cash last week, the largest inflow since the pandemic, while data from Refinitv indicates that fourth quarter earnings will likely fall by 0.4% from last year to a share-weighted $459.6 billion.

Earnings are anticipated to increase 4.3% from last year to $464.1 billion with just over 85% of the S&P 500 reporting for the October quarter; however, excluding the oil sector reduces that rate to -3.4%.

This week, market direction will be driven by midterm elections and inflation data as investors continue to look for signs of how or when the Federal Reserve will end its ongoing cycle of rate hikes.

According to polls, the Republicans have a better chance than ever of winning both the House and the Senate on Tuesday, and important contests in Georgia could give them control of the Senate for a fourth straight Congress. With that composition, President Joe Biden’s proposed fiscal program for his final two years in office would likely be defeated. It would also potentially eliminate a significant market risk that higher levels of fiscal spending by the Democrats would further exacerbate inflationary pressures.

On that front, the important October CPI data, which is scheduled to be issued at 8:30 am on Thursday, is anticipated to demonstrate at least a minor slowing of headline inflation on an annual basis, albeit higher gas prices will raise the reading for the month-over-month comparison to 0.7%. Forecasts predict that significant drops in used automobile prices will reduce the core component to 0.5% or less.

Original article posted here.