With barely two weeks to go until Americans go to the polls for the midterm elections, the economic stage is largely set.
Inflation is still a problem. High interest rates are making it less affordable to buy a house or finance a car. Large tech companies continue to announce massive capital investments, although some have raised concerns about the debt they are taking on.
The midterms will largely be a referendum on President Donald Trump and his economic policies. Gasoline is $4.29 a gallon, global oil prices are $107 a barrel and his approval ratings among U.S. adults are at a record low of 33%.
The Federal Reserve is likely to raise interest rates before the end of the year, although most analysts believe members will leave them unchanged when they meet later this month. But even the Fed does not see inflation getting back to its 2% annual target before 2029.
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“As we have noted for some time, U.S. inflation is not going to return to 2% absent a much weaker economy,” Bob Doll, CEO at Crossmark Global Investments, wrote on Monday. “Most market participants describe the Fed as being hawkish, whereas we have labeled it as ‘less dovish.’ This is because the starting point of Fed policy this year was that it had been accommodative for years, rather than restrictive as it, and bond bulls, had believed.”
The week does bring some economic data, but none that is likely to move markets or alter the current narrative.
Monday, the National Association of Home Builders will issue its October confidence index, which has been trending low for some months and is not expected to change much. There will be other reads on the housing sector Tuesday, with housing starts and building permits for September as well as pending home sales. But with the market struggling with 7% mortgages, those numbers are likely to stay weak.
“Residential construction faces intensifying pressure,” Wells Fargo economists wrote in their weekly review. “Housing starts have declined in four of the past five months alongside a steady rise in mortgage rates. Mortgage rates specifically surpassed 7.0% by the end of September, setting a fresh affordability challenge for prospective buyers. As a result, the NAHB home builder survey showed a sharp deterioration in builders’ sales expectations and corresponding increase in price cuts.”
On Thursday, the Conference Board will release its leading economic indicators index for September. It has trended lower of late, despite the economy remaining resilient, and is not expected to budge.
The week closes out with the final estimate of consumer sentiment for October from the University of Michigan. It will probably dip slightly from earlier estimates following recent higher-than-expected inflation reports.
