Future market trends after receiving employment statistics and the U.S. midterm elections

※ Newsletter distributed on November 8, 2022.

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Hello, this is Shimon.



Last week had a flurry of big events.

It was a week full of highlights.

On Wednesday, there was the FOMC

And on Friday

the employment report was released.



Today, in the United States

the midterm elections also take place.



Right now, the stock market

is searching for the direction of US monetary policy,

and is greatly affected by it,

but employment-related economic indicators

such as the employment statistics and unemployment rate

are important clues in gauging monetary policy trends.







So this time we will

look back at last week's FOMC and

the employment statistics,

and discuss the impact

that the start of today’s US midterm elections

will have on the stock market.

We will provide an analysis of the influence.





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FOMC Review

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Now, about the FOMC review

Since just after the September FOMC,

as expected,

a 75 basis point rate hike

was implemented as planned,

continuing for the fourth time in a row

with a 75 basis point increase,

resulting in a strong tightening.



Regarding the pace of hikes,

it was as expected,

with no surprises, but

the focus in this FOMC was

whether Powell would mention

whether there would be early tightening or not.









This is because, in late October,

several Federal Reserve officials

hinted at the possibility of easing tightening after December.







As a result,

Powell’s remarks suggested that

“at some point, slowing the pace of rate hikes

would be appropriate,

and if possible, perhaps by the next meeting

or the meeting after that.”







He stated that

“data obtained since the previous meeting indicates

the final level of rates could be higher

than previously expected.”



He also said that

“it is premature to consider pausing rate hikes.”

Thus, there was not as much dovishness as the market had anticipated.





On the other hand, there were officials who suggested

that the terminal rate could exceed 5% into 2023,

and some market participants are

expecting above 6% in the longer run.










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Employment Statistics Review

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The FOMC wasn’t as dovish as expected, but

Powell emphasizes the importance of

the employment statistics,

which were released on Friday.




The result was

October nonfarm payrolls grew by

+261,000,

versus expectations of

+61,000.





The unemployment rate was 3.7%,

worsening for the second month in a row,

and still the lowest since 1969,

the lowest in 53 years.





Average hourly earnings rose by

4.7% year over year,

as expected.



In short, jobs increased, but unemployment worsened,

a mix of strong and weak indicators.





In response,

On April 4, the US stock market

rebounded after a slide,

with the Dow Jones Industrial Average

rising 401.97 to 32,403.22,

its first gain in five days.





The Nasdaq Composite, centered on tech stocks,

rose 132.313 to 10,475.254,

also a five-day rebound.








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Today is the US Midterm Elections

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As for the midterms, we have mentioned several times in this newsletter, so details are omitted, but in summary











the Senate will see one-third of its members elected,

all members of the House will be elected,

as well as governors of the states.



Midterm elections are a major event in the United States and are seen as a precursor to the next presidential election.









In the House elections,

the current Democratic Party is not as strong as the opposition Republicans,

and a so-called “split decision” is likely to occur.









Finally, what kind of impact will this midterm have on the stock market?

We will discuss this.







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Impact of midterms on the stock market

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Now, the impact on the stock market depends on which party is ahead

in the current administration’s party,

and if the Democratic Party gains the upper hand,

it could lead to stable governance and a positive market reaction.









If the Republicans gain the upper hand,

it could hinder the Democratic administration and be negative for the stock market.









However, as mentioned in this newsletter before,

there is an election-year anomaly

that tends to push stocks higher during important elections.





Of course, policy rate movements remain the most influential factor on the stock market,









but keep this in mind when making investment decisions.








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Summary

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There are less than two months left in this year,

and this month is extremely important for gauging the next year’s financial market trends.





After the midterm elections, the Consumer Price Index will be released,



and by then

we should have a good sense of how high the December FOMC policy rate will be.







We will continue to provide this newsletter with

the latest news and

stock market trends.





Thank you for reading until the end today as well.

Shimo Yama Keizo






＊Disclaimer＊

Regarding the contents of this newsletter,
we strive to ensure they are accurate and up-to-date,
but we cannot accept any responsibility for losses arising from the contents.
Thank you for your understanding.