US Presidential election takes centre stage

US Equity Market

The imminent Presidential election continued to absorb much of the limelight in the US. On balance, investors appear to believe that Hillary Clinton will emerge victorious, although the House of Representatives is expected to remain in Republican hands, albeit with a lower majority. Nevertheless, in a close-run – and often bad-tempered – election campaign, investors have become increasingly jittery about the possible outcome. Over October as a whole, the Dow Jones Industrial Average Index fell by 0.9%, while the S&P 500 Index fell by 1.9% and the Nasdaq Index fell by 2.3%.

The decision by the Federal Open Market Committee (FOMC) to leave interest rates unchanged at their September meeting was a “close call”, according to the meeting’s minutes. However, Fed policymakers opted to wait for signs of sustained improvement in the labour market and “more convincing evidence” that inflation is moving towards its 2% target.

The US economy grew at an annualised rate of 2.9% during the third quarter of 2016, having expanded by 1.4% in the previous quarter. Although the rate of growth in consumer spending moderated, this was counterbalanced by an increase in business spending. The economy added 156,000 new jobs during September, following a revised total of 167,000 in August. In comparison, the monthly average over the past 12 months stands at 178,000. The rate of unemployment rose from 4.9% in August to 5% in September.

The third-quarter corporate earnings season continued in October and, by the end of the month, 70% of companies had reported and 73% of these had beaten consensus expectations, according to S&P Dow Jones Indices. During October, telecoms company AT&T announced its acquisition of media company Time Warner for around US$85 billion in cash and shares. Meanwhile, expected bids for social media company Twitter did not materialise, and the company’s share price fell by more than 20% over the month.

Financials was the best-performing S&P industry sector over October, although this relatively strong performance was partly attributable to the fact that real estate now has its own separate sector. Utilities was the only other sector to end October in positive territory. At the other end of the performance spectrum, telecommunication services was the worst-performing sector, followed by health care, and real estate.  Looking ahead, the energy sector is likely to come under the spotlight ahead of Opec’s meeting at the end of November.