Investment Commentary –November 1st, 2016
Market Indices as of Market Close November 1st, 2016
Dow 17,959 (4.46% YTD)
S&P 2,097 (4.91% YTD)
NASDAQ 5,105 (4.77% YTD)
Global DOW 2,411 (2,033 week low/high 2,489)
10-year Treasury 1.80 (1.32 52 week low /2.38 high)
Gold 1,297 ($1,053 52 week low /high $1,384)
Oil $45.48 ($34.06 52 week low /high $53.62)

Fed holds rates steady, sets stage for December hike

The Federal Reserve kept interest rates unchanged on Wednesday in its last policy decision before the U.S. election, but signaled it could hike in December as the economy gathers momentum and inflation picks up.

The U.S. central bank said the economy had gained steam and job gains remained solid. Policymakers also expressed more optimism that inflation was moving toward their 2 percent target.

“The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” the Fed said in a statement following a two-day meeting.
That suggests the bar is low for a rate increase at the Fed’s final policy meeting of the year in mid-December, which has largely been factored in by financial markets.

U.S. stocks extended earlier losses and Treasury yields fell after the release of the Fed statement. The U.S. dollar .DXY briefly pared losses before falling further against a basket of currencies.

“You are still pointing to a December hike, they just didn’t pre-commit to it,” said John Canally, investment strategist and economist for LPL Financial in Boston.

J.P. Morgan Thought of the Week

Several indicators are pointing to a pick up in both global economic growth and inflation. This is good news for investors, as better growth should help combat the recent slump in corporate profits. Flash estimates of manufacturing Purchasing Managers’ Indices (PMI) released for the G3 economies (U.S. 53.2, Euro area 54.4, Japan 51.7) point to an uptick in output.

If the final PMIs reflect the jump in the flash estimates it would suggest around 3% growth at an annualized rate in global manufacturing. This would be a significant improvement from the roughly 1% growth seen in the last year and a half. Combined with recently released trade data, the manufacturing PMIs paint a rosier picture for growth in the rest of this year. Manufacturing output and global trade volumes are closely linked, as increasing trade signals more demand for manufacturing output.

While data for global trade volumes is currently only available through August 2016, the flash October PMIs seem to indicate investors can expect the increase in trade to continue. Against this backdrop, it looks as though faster economic growth is on the horizon. Stronger fundamentals could be supportive for corporate profits, and thus, equities, heading into the end of the year.

THIS DAY IN FINANCIAL HISTORY: November 1sth, 1950 Unsuccessful Assassination Good For Business

On this day in 1950 an assassination attempt was made on President Harry Truman. In the aftermath of this unsuccessful attempt Wall Street traders relieved by the news that Truman was safe went on a modest buying spree in the stock market. The Dow posted modest gains for the day.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.