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November Outlook: From Jobs To Fed to China, This Month Has it All

JJ Kinahan

Investors might have a good sense of how November went for the market long before their first helpings of turkey and stuffing.

The month kicks off this Friday as investors take in payrolls data for October and a key update on U.S. manufacturing health. The drama continues on Nov. 16-17 when U.S. and Chinese leaders are scheduled to meet in Chile and maybe, just maybe, sign some sort of agreement on trade. 

So basically by mid-month, two of the biggest events could already be out of the way. That’s unlike last year, when U.S. President Trump and China’s President Xi met to talk trade after the last servings of pumpkin pie.

The U.S. calls the agreement, “Phase 1,” but Beijing hasn’t used that terminology. Whatever they decide to call it, or even if they can’t agree on a name, a few signatures on a piece of paper would definitely feel like a landmark in this nearly two-year process. 

What isn’t clear is how far the agreement goes toward satisfying some of the U.S. complaints that got this whole thing started, namely Beijing’s policy around intellectual property and how it treats U.S. companies with operations in China. The Phase 1 part is supposed to include intellectual property and financial services issues along with more China purchases of U.S. farm products, according to media reports.

While jobs and trade could be keystones this coming month, there’s plenty of other stuff to keep investors occupied as the autumn days shorten and winter approaches. 

The calendar includes the steady drumbeat of Q3 earnings and Q4 guidance from companies, Washington political drama, the start of the holiday shopping season, potential fallout over the Fed’s rate decision scheduled for this week, and possible new developments in the never-ending soap opera called Brexit. 

Even though we’re entering the final two months of the year, there’s no sign of any vacation for investors.

Month to Start With A Crescendo

You don’t often see two huge pieces of data hit the tape on the first Friday of a month, but that’s exactly what happens Nov. 1 (this Friday) when the October U.S. payrolls report and the ISM manufacturing report for October both drop on the market.

Jobs growth has been trending lower this year, but many analysts say that’s not surprising considering how strong it was in 2017 and 2018. A month ago, the payrolls data were in Goldilocks territory. 

The economy added 136,000 jobs in September and the government upwardly revised numbers from the previous two months. Hourly pay rose 2.9%, down a little from August but also a possible sign that inflation remains at bay, giving the Fed more cover if it wants to lower rates. Jobs growth wasn’t outstanding, but economists said it was enough to indicate continued economic health.

If Nov. 1 brings another report like that for October, the market could react without much drama. However, if jobs growth slows significantly or wage growth slows further, you could have some people start to get nervous. That’s partly because of the uncertain U.S. manufacturing and business spending picture. The same day that brings October’s jobs numbers also delivers the follow-up to a report that really slammed the market a month ago: The ISM Manufacturing Index. 

Last month’s reading on U.S. manufacturing health, at 47.8%, was the worst in a decade (anything below 50% indicates contraction) and the second contracting month in a row. It drove fears that weakness in manufacturing might ultimately lead to a weaker consumer. More signs of trouble reared later in October with a rough reading on retail sales and durable goods orders for September that fell 1.1%. 

Arguably, the Nov. 1 ISM report could be nearly as important as the jobs report the same day. If manufacturing continues to sputter, it could raise fears of business issues starting to have an impact on workers, followed maybe by a hit to consumer spending. Even if the October jobs data don’t pick that up, it would potentially be a worry going into the November report if the manufacturing number doesn’t look good.

Consumer spending is what’s really driven the economy these last few months, even with the overhang of slowness in Europe and Asia and issues like trade and Brexit. Consumer confidence here in the U.S. has stayed pretty high, and we’re heading into an important holiday shopping season. When people have jobs, they’re willing to spend money, and the solid consumer spending we’ve seen is a side effect of a great job market.

No matter what happens with the trade picture, consumers can probably be counted on to keep the party going at least through holiday season. However, if trade issues don’t get resolved before the end of the year, we could face a day of reckoning. Higher tariffs could raise prices for consumer products, and companies facing uncertainty might be less willing to pay higher wages or add jobs. 

Q3 Earnings Show Businesses Worried About Macro Picture

Not only that, trade uncertainty has already had an impact on many businesses. At this point, there’s really no roadmap for the future of doing business in China, and companies aren’t going to get in the driver’s seat and plow ahead without some sort of guidebook.

This earnings season shows signs of that, with companies like 3M Co (NYSE: MMM) and Ford Motor Company (NYSE: F) both cutting guidance and citing concerns about China and “macroeconomic” challenges. Caterpillar Inc. (NYSE: CAT) was another major industrial company that cut its forecast, saying it’s dealing with “major global uncertainty.” The concerns spread to Technology as Texas Instruments Incorporated (NASDAQ: TXN) made similar comments. CAT’s sales in Asia-Pacific dropped 13% in Q3, mainly due to lower demand in China, the company said. What a lot of this is showing us is that the tariff situation continues to be a major concern for companies in how to spend their money.

The downcast outlooks from some of the big Industrial firms so far this earnings season are worrisome, and the end of October brings results from several other huge companies with stakes in China including General Motors Company (NYSE: GM), Apple Inc. (NASDAQ: AAPL), and General Electric Company (NYSE: GE). Their guidance and what they say about the global and U.S. manufacturing and consumer environments could help set the stage for how markets behave in early November.

The other stage-setter is this week’s Fed meeting. Going into Wednesday’s decision, the futures market at CME Group pegged odds of a rate cut at well over 90%. It would be the Fed’s third meeting in a row with a rate cut as the Federal Open Market Committee (FOMC) and Fed Chair Jerome Powell continue to emphasize taking steps to keep the economy humming. The long-term inflation slump helps make this possible, but some analysts say the Fed could take a holiday pause. 

There’s no Fed meeting in November, but the rate cut odds for the December meeting are just 30%, according to futures prices. Many members of the FOMC have recently sounded less dovish, and once October’s meeting is out of the way the market might focus in November on whether these more hawkish winds continue to blow. Rate cuts take a while to work their way through the economy, economists say, so the Fed might want to sit back for a bit and assess whether its actions in July, September, and October had any impact.

A U.S. rate cut could help support the market, but economic growth around the world continues to slo. China recently reported its slowest-growth quarter in more than 25 years. Europe and Japan can’t seem to spark their economies despite years of negative interest rates, and the U.S. economy is only growing at about a 2% clip despite the benchmark 10-year Treasury yield spending much of October historically low in the 1.7% range. Those low rates helped send borrowing costs below 3.9% for a 30-year mortgage, but housing news has been mixed lately, hurt in part by skyrocketing home prices.

At least consumers don’t have to contend with high gas prices. Crude oil stayed in the low-$50’s a barrel for most of October. The coming two months often bring some of the lowest gas prices of the year as demand tends to fall, and OPEC won’t meet again until December. However, there’s a growing sense it could cut production further then.

Countdown to Black Friday Begins

So on Nov. 29, maybe we’ll see people driving to big-box stores for “Black Friday” shopping sprees with thick wallets from the money they’ve saved on gas. Some of the companies to watch that day include retailers Macy’s Inc (NYSE: M), Target Corporation (NYSE: TGT), Walmart  Inc (NYSE: WMT), Amazon.com, Inc. (NASDAQ: AMZN), Nike Inc (NYSE: NKE), and many others. A lot of the retailers report earnings in the weeks leading up to Black Friday, giving investors a chance to listen in to some of those calls and get a sense of what companies expect for shopping season.

Amazon fired a shot across the bow with its earnings report on Oct. 24, and it wasn’t good news. The company guided for Q4 guidance for revenue in a range of $80 billion to $86.5 billion—well below the Street’s average estimate of $87.4 billion. That unexpectedly bearish outlook could raise  eyebrows about the holiday shopping season. Consumer spending has been a constant in the economy over the last six months. Arguably, few companies are as tuned into the consumer as AMZN, so if AMZN sees any roadblocks, that’s worth knowing about.

Whatever the case, AMZN put on a positive spin, saying in its press release that it’s ramping up “to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery.” However, the disappointing guidance might mean investors pay even closer attention to outlooks from major retail stores scheduled to report in November to see if this is a trend or just something isolated to AMZN.

By the time everyone heads to the stores, they’re likely to know a lot more about how this trade deal with China might shape up. Even before the two presidents meet, news is likely to gather steam in the weeks ahead as rumors and innuendo start to flow. If you’re a long-term investor, consider not letting the trade noise bother you too much and continue focusing on your long-term trading plan. 

Other noise that might be distracting in November include Washington politics and Brexit. Any new developments on those fronts have the potential to rock the stock market on any given day in the month ahead, a reminder that it’s sometimes more prudent not to watch every little move in the indices. One of the worst things investors can do is make decisions based on fear or exuberance.

Speaking of that, the end of the year is approaching, and that means it might be a good time to blow the dust off your long-term goals (which hopefully you’ve written down) and make sure your investment portfolio still suits what you’re trying to achieve. If you’ve had any major life changes this year like a new baby, the kids going to college, or a home purchase, November and December sometimes are when investors pause, go over their plans, and double-check their current sector weightings and fixed-income vs. equity allocations. It also can be a good time of year to identify some of the losers in your portfolio and consider how to use tax-loss harvesting strategies.

That doesn’t mean there’s no time for an extra slice of pumpkin pie and some football on TV, however. Isn’t that what November is all about?

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

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