Election jobs to set tone for US stocks

WALL Street hopes to turn a new page as it heads into November, but next week is littered with hurdles ranging from the US presidential election to a likely gloomy jobs report. Traders were more than happy to see the back of October, one of the worst months in history for the broader market, and took heart from the fact that it ended with one of the best weeks on record.
This week’s strength came as the host of efforts by central banks and governments to ease credit strains began to bear fruit, and volatility abated slightly. Bargain hunting and funds buying stocks to rebalance their portfolios also helped boost stocks.
For the first part of next week, Wall Street, like the rest of America, will turn its attention to Tuesday’s presidential election. Democrat Barack Obama’s lead over Republican rival John McCain held steady at seven points as the race for the White House entered its final four days. Investors will likely assess the possibility of quick fiscal stimulus after the election and the risk of protectionist measures or more regulation.
Thomson Reuters data shows that on average the 60 days preceding a new presidential term yield positive returns, suggesting that the lack of uncertainty after elections usually gives the market a boost.
“Once we know what the balance of power will look like, investors can factor that into the equation. The market may not like who wins, but it will like knowing,” said Christopher Zook, chairman and chief investment officer of CAZ Investments in Houston.
But a raft of economic data will be vying for investors’ attention, as will earnings reports in the last heavy week of the autumn results season.
In the week ahead, the main event on the economic calendar is the October US employment report. That data, due on Friday, is expected to show that US nonfarm payrolls shed 2,00,000 jobs in October, according to a Reuters poll, while the unemployment rate is forecast to rise 6.3%.
Other key economic reports include the Institute for Supply Manage-ment (ISM) reports on manufacturing on Monday and non-manufacturing, or service sector, activity on Wednesday. Both are expected to produce readings showing that the economy contracted in October.
Among the major companies set to report earnings next week are Anadarko Petroleum, MasterCard, Cisco Systems and Sprint Nextel. With 59% of S&P 500 companies having reported earnings in the third quarter, on average earnings for companies in the index are expected to fall 23.8% for the quarter.
Meanwhile, the Federal Reserve’s efforts to shore up short-term lending for companies and banks continued to build momentum in the critical commercial paper market with a program the US central bank launched this week. October was a nightmare for US stock investors, with the Dow Jones industrial average ending the month down 14.06%, its worst monthly percent age drop since August 1998. The Standard & Poor’s 500 Index slid 16.83% this month for its worst onemonth percent age slide since October 1987. The Nasdaq lost 17.73% in October, its worst one-month percent age loss since February 2001.
For the week, though, Wall Street wrapped up a rotten month with a Halloween treat. Stocks ended Friday’s session higher, following Thursday’s advance a day after the Fed’s half-percent age-point rate cut. This performance gave the US stock market its first back-to-back gains in over a month.
The Dow finished the week up 11.3%, its best weekly percent age gain since October 1974, while the S&P 500 climbed 10.5%, its best weekly percent age gain since at least January 1980. The Nasdaq rose 10.9%, its best weekly percent age gain since April 2001.