U.S. Equity Markets finished Tuesday higher, led by the 1.02% gain in the Dow. U.S. Mid-Term elections were the main focus of the day. Investors are anticipating the real possibility of a split Congress, which could spur a rally for stocks as further government spending would be curtailed. Midday volatility was largely due to negative crypto sentiment, as Binance pushed a controversial takeover of rival FTX. Investors continue to look for positive inflation signs, especially as the Manheim Used Vehicle Value Index showed a further decline in prices. History shows that employment gains typically peak around the election cycle. Last week, Federal Reserve Chairman Jerome Powell told us the central bank is concerned by the lack of people seeking work. He said the rate-setting Federal Open Market Committee has been raising interest rates in an attempt to slow economic growth – and that below-trend output would be ideal. According to the U.S. Bureau of Economic Analysis, Gross Domestic Product grew by 5.7% last year. The average for the decade leading up to the COVID-19 pandemic was 2.3%. Thus, policymakers would like to see economic output below 2.3% for a while. This past Friday, the U.S. Bureau of Labour Statistics released Non-Farm Payroll data for October. The headline establishment survey showed a gain of 261,000 jobs. We care about this because it is the information the Fed uses to make its policy decisions. What was interesting about October’s results was the variance between the establishment survey and the household survey. The household numbers showed the economy lost 328,000 jobs last month. In fact, the two surveys showed a large margin of difference in employment gains for March through the end of October. But data over the last four election cycles point toward job gains peaking in October. If that holds true this time around, it should act as a tailwind for the S&P 500 Index. The two reports measure different variables. The establishment survey (or “payroll survey”) simply measures the number of jobs. It does not distinguish if more than one job is held by one individual. The household data records the number of people who have a job, and it does not measure whether anyone is pulling double duty. The establishment survey shows the economy has added about 2.45 million jobs over the past two quarters. Meanwhile, the household survey indicates that only 150,000 individuals have found gainful employment. That is a difference of around 2.3 million jobs, which is a bit concerning when you consider interest-rate hikes are based on those numbers, focussing on the higher number of the two. I looked back at the last four election cycles to see if we noticed any trends. Our time frame goes back to the 2014 midterm elections and covers one full presidential term under former President Barack Obama and his successor President Donald Trump. What I found was that in three of the four elections, both surveys tend to have a higher job-gain average in the six months going into the November vote. But if the current trend holds true, job gains should weaken as we head into the middle of next year. Now, that is not what we always want to see in terms of economic growth. But from a Fed policy perspective, that outcome is ideal. Chairman Powell has told us that the Fed wants to see the unemployment rate rise, boosting the supply of workers. Otherwise, it will continue to raise rates until this is achieved. So, we will want to keep a close eye on this data as a signal for when the central bank will start to slow interest-rate hikes. With the passing of this Mid-Term election, that moment could be right around the corner. The sooner Money managers get a sense that we are at peak interest rates, the sooner they will become more optimistic about risk assets like stocks. They will rush to lock in attractive yields on high-quality assets, like U.S. Treasurys before it’s too late. Then, those same Money managers will work their way down the investment food chain, looking for other opportunities and attractive returns. This in turn will support a longer-term rally in the S&P 500. Within the S&P 500 Index, 10 of the 11 sectors finished higher. European Markets closed positive. Markets ended higher as investors turned their attention to the banking sector after European Central Bank (“ECB”) top supervisor Andrea Enria said it is carefully scrutinising payout plans amid the weakening economic outlook. Also, ECB policymakers pushed back on a dovish pivot, asserting that movement by other central banks does not reflect the current economic situation in Europe. Further, there was slight optimism over a possible resolution to the Ukraine-Russia conflict, as Ukrainian President Volodymyr Zelensky said he would be open to peace talks with Russia. In Asia, Markets ended mixed as speculation continued about China pivoting away from its strict “zero-COVID” policy. Health officials have maintained that China will stick with the strategy, though markets appear to be focusing on any indication of a reopening. Elsewhere, Japan household spending fell short of expectations while wages accelerated. Rising rates and inflation drove Australian consumer confidence to the lowest level since April 2020, with an increase in household inflation expectations. Australian Business Confidence also fell amid a deteriorating economic outlook. Elsewhere, Oil fell 3.08% while Gold rallied 2.10% on a weaker Dollar.

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