Today as I write commentary all focus is on the election. In particular, the incredibly close Presidential race that I hope to be resolved by Wednesday morning (as is the standard). Hopefully the nation is not dragged into another contentious post election debate like 2020.

Unfortunately, that unwelcome outcome is highly probable and would likely postpone any further bullish catalyst for stocks that normally comes with finalizing the results. Meaning that new highs for the S&P 500 (SPY) will likely not come until the winner of the election is settled.

So, we will steer clear of that topic and talk about the things we do know about. That includes the recent economic data leading up to the next Fed rate decision meeting on November 7th.

Market Outlook

On the one hand we have 5 straight inflation reports that were did not show a decline in inflation. This includes the most recent data from the Fed’s preferred indicator, Core PCE Price Index, which stayed locked at 2.7% year over year.

Then on Friday the Average Hourly Earnings component of the monthly jobs report showed that it remains too sticky at 4.1% year over year. Even worse was the month over month reading coming in at 0.4% when 0.3% was expected.

If the above was the only information in hand, I would say unequivocally that the Fed would not raise rates at the Wednesday November 7th meeting.

On the other hand, only 12,000 jobs were added in October according to that same Friday employment report. That is woefully under the 180,000 expected.

My first instinct is to say it’s another faulty read that gets corrected down the line with a big positive revision. That’s because no other employment indicator is showing this kind of weakness. For example, you would normally see a spike in weekly Jobless Claims leading up to this kind of result. That is not the case.

However, if there is some truth to this softness in employment, then yes, the Fed could very well lower rates another 25 basis points (which is the current consensus). That is because the Fed would need to heed the other half of their dual mandate which is to maintain full employment.

Do remember that there is a 6-12 month lagged effect on Fed rate changes. And the current rates are still restrictive. Thus, to not let unemployment become a bigger problem would compel them to lower rates now.

To be honest, there is very little difference between lowering rates 25 points per meeting or doing it 50 basis points every other meeting. Therefore, I think Fed officials would rather heed the street consensus of lowering by 25 basis points in November instead of holding off on that move which would likely disturb market conditions.

Adding it all up, we are still very much in the midst of a bull market. The key ingredients for the next bull run higher is partially about the Fed rate cut decisions...and partially about a seamless process to finalize the elections.

I believe it is best to stay bullish at this time and concentrate your portfolio in Risk On positions. That means overweight small and mid caps while underweighting large caps.

Plus go for more economically sensitive industries that would benefit from a lower rate environment; Industrials, Materials, Auto, Home Building, Finance and Consumer Discretionary.

My personal favorites are shared in the next section...

What To Do Next?

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Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return

SPY shares were trading at $576.25 per share on Tuesday afternoon, up $6.44 (+1.13%). Year-to-date, SPY has gained 22.38%, versus a % rise in the benchmark S&P 500 index during the same period.

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

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