Waiting on the Election

Stocks fell for the week as heightened political uncertainty surrounding the upcoming election cast a pall over the markets. By Friday, the S&P 500 Index had recorded its ninth consecutive daily decline, its longest losing streak since 1980.  Most of the daily declines were small, however, and the week’s loss (down 1.89%) was less than the 2.2% weekly decline the index suffered as recently as early September. The general “risk off” environment weighed especially on the Nasdaq Composite, home to many fast-growing and richly-priced technology and Internet companies.
 
Polling results early in the week showing that Donald Trump was closing the gap with Hillary Clinton seemed to unsettle markets—whether because of an overall investor preference for Clinton’s agenda, worries about a contested election, or simply heightened political uncertainty. Specifically, volatility spiked on Tuesday following the release of a tracking poll showing Trump slightly ahead in the race. The recent precedent set by Brexit of a surprise election outcome that sent markets plunging may have been on the minds of many investors, although the quick recovery in British markets after the vote seems to have been forgotten. 
 
On Friday, US initial jobless claims of 265,000 were higher than the consensus estimate of 256,000 and higher than the previous week’s 258,000. The payrolls number, while technically a slight miss, still points to a labor market that remains relatively strong and is absorbing excess slack, even as the quality of jobs created remains a concern. The report also showed wage growth on a year-over-year basis rising to its highest level since the recovery began in 2009.
 
Elsewhere, the week’s economic data were generally positive as well. Personal income and consumer spending both recorded healthy gains in September, and a gauge of manufacturing activity remained in expansion territory and rose slightly. The Federal Reserve met during the week and decided to keep rates steady, as was widely expected, but the solid jobs report leaves the central bank on track to increase rates in December.
 
In an attempt to override the will of the voting public, the UK High Court ruled that Prime Minister Theresa May must first gain Parliament’s approval before starting the Brexit process, known as Article 50. The UK government quickly appealed the case to its Supreme Court.  May said on Friday that the ruling would not stop her plan to begin the two-year window for negotiating the exit from the European Union in late March.
 
On to the polls!