Fed meeting in sight but
election looms for stocks
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[October 29, 2016]
By Caroline Valetkevitch
NEW YORK (Reuters) - The Federal Reserve
meets next week and the U.S. government releases an important report on
jobs, but investors could be forgiven for having something else on their
minds.
The heated U.S. presidential campaign, which for months has grabbed the
bulk of U.S. 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 <.VIX> - 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 U.S. House of Representatives,
essentially keeping the current state of political gridlock.
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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.
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Traders work on the floor of the New York Stock Exchange (NYSE) in
New York City, U.S., September 15, 2016. REUTERS/Brendan McDermid
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"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.
(Reporting by Caroline Valetkevitch; Additional reporting by Saqib Ahmed;
Editing by James Dalgleish)
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