NYSE (TBD) – October started as as per usual. It’s a pseudo holiday-season month with a little selling and some cooling of the profits jets.Trade woes with China and a heavy-handed Fed weighs on the minds of investors but big money movers have already reacted. But by the end of the day the Financier Patisserie on Stone St. sitting just a block and a half from the trading floor was likely one of the few businesses that turned a profit that day. Guttural, fear-induced selling pulled the Dow Jones Industrial Average down over 1,330pts – roughly $2.532B – in just two days. The S&P 500 and the Nasdaq also reflected the 5.2% loss at $411.8B and $212.4B, respectively.
Of the factors that affect October investing one of the most explanatory is simply that it’s October. It’s pseudo holiday status gives purpose to a pause in new product releases, a cooling in consumer spending, and disastrous weather events. But the show must go on and impactful numbers out of Washington tabulating September are still expected. Starting on October 10th the inflation indices reported producer costs rose 0.2% and then on the 11th consumer pricing was announced to a 0.1% rise, both higher than expected. This high-risk environment was made worse when the big movers like AAPL, BA, CSCO reported good, but not exceptional profits, attributed to feeling the effect of President Trump’s trade negotiations with China and Mexico.
The Federal Reserve Bank
The final worry to investors, as it often can be, is the Fed. Chairman of the Federal Reserve Jerome Powell announced a ¼ point hike that took effect at the end of September 2018 marking the 3rd increase this year. After rates dropped to near 0% in 2008 to combat the financial crisis, President Barack Obama serves two terms to two rate increases totalling .5%. Since the election of President Trump in 2016 there have been six rate increases totalling 1.5%. Fears of additional rate increases and the aforementioned factors contributed to the major sell-off and it was the largest single day point loss for the DOW since February 2018.
Could This Be Natural?
But there’s an argument to be made that this is a natural, or at worst understandable and survivable, reaction to the supercharged U.S. economy that has developed over the last year. It is generally accepted when looking back to the 2008 financial crisis that there was a bubble in housing prices that lasted so long and because so large that it emptied our major banks in its bursting. This bubble was created via regulatory overlooks (in cases purposely), overzealous lenders, and boujee mortgage applicants. The key difference in 2018 is that the government has its hands off the goods.
President Trump’s deregulation strategy, tax bills, and revamped trade agreements including the recent NAFTA re-do, The USMCA, have provided major corporations the risk tolerance to spend their capital, repatriate their profits, and hire & pay more. The tried and true principle of capitalist economics is that if the consumer has and keeps more of their money he or she will often spend more of that money. This principle, consumer spending, is what will reframe this October stymie into a more timely and routine sell-off. As mentioned before consumer spending cools in October but the first two years of the Trump Presidency are different. Average halloween spending during President Obama’s second term measured fell and stabilized at approx. $7B. President Trump has overseen a 30% increase in Halloween spending, a record breaking $9B. Consumer confidence is not just shown by its measure but by how people spend their money. The subsequent increases in the stock market in the first days of November trading is in part to the reaction that non-essential spending like Halloween mark a health from within the average consumer. Stable 401ks and employment are making consumers comfortable spending a little extra this year and the companies are able to grow because of it, appeasing shareholders.
Keep Your Head Up
With Black Friday and many other holidays on the horizon 2018 still as a lot of life left live. If consumer spending continues to increase as it has and the market’s sell-off is just the burp it needed to keep chugging along for the blue-collar worker, we may be in a position to really ride a bull wave into the next Presidential election. Investors seem poised to keep their interest in the markets and maintain current bond and cash-equivalent strategies.
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