📈📉 What matters most

Plus: Case for a soft landing | Tuesday, November 08, 2022

Open in app View in browser   Presented By Upside   Axios Markets By Matt Phillips and Emily Peck · Nov 08, 2022 🗳 Hi! Welcome back. Election Day is upon us. Today's newsletter is 1,021 words, 4 minutes.     1 big thing: Midterms and the markets Illustration: Sarah Grillo/Axios   The potentially combustible cocktail of American politics and markets will get a fresh shake from voters today. Few on Wall Street expect much fizz, however, Matt writes. State of play: Republicans look set to take control of the House of Representatives — and potentially the Senate. The big picture: Analysts seem skeptical that a change in control of Congress to the GOP will generate a giant move — up or down — for the badly battered stock market. The S&P 500 has shed over 20% this year and is on track for its worst year since 2009. The tech-heavy Nasdaq composite is down over 30%. The sell-off has been driven by Fed's six — count 'em, six! — rate hikes this year, which have hammered so-called growth stocks particularly hard. What they're saying: "The election appears to rank relatively low on the list of macro factors concerning equity investors. Inflation, monetary policy, recession risk, and geopolitics have been far more important drivers of equity market moves than the potential for modest changes in US fiscal policy," wrote Ben Snider, an equity market analyst at Goldman Sachs, in a recent note. A recent survey of investors from JPMorgan showed 40% of respondents expected the elections to be a positive catalyst for the market, while 12% thought it would be negative. About 48% thought the elections would be a nonevent. Yes, but: That doesn't mean markets won't do anything after the votes are counted. It's fairly common for stocks to get a lift after elections, as the uncertainty surrounding winners and losers dissipates. Since 1950, all 18 midterm elections have been followed by an up year for stocks, with nearly identical returns after wins by both Democrats and Republicans, according to research from LPL Financial. "As far as markets are concerned, the policy impact is likely to be small, and market participants will continue to be more focused on central bank policy and inflation," LPL analysts wrote recently. What we're watching: The fight between the Fed and inflation — not Democrats and Republicans — is what matters most for markets right now. It's Thursday's report on consumer inflation for October, not today's elections, that stands to move markets the most this week.     2. Catch up quick 💰Record $1.9 billion Powerball drawing delayed. (AP) 🥊 Crypto billionaires' fight triggers contagion concerns. (Bloomberg) 🏢 Developers pause new projects because of high vacancy rates. (WSJ) ⬇️ Job cuts raise fears of "white-collar recession." (FT)     3. Soft landing still possible, Goldman economist says Illustration: Aïda Amer/Axios   In a new note from Goldman Sachs, chief economist Jan Hatzius puts the likelihood of a recession in the U.S. over the next 12 months at 35% — far below some of the more dire predictions circulating, Emily writes. Why it matters: While surging inflation makes the economy feel terrible and a recession seems inevitable, there are signs that a "soft landing" is still possible. It's a "narrow path," Hatzius writes. One reason: Wages. Yes, most of us are out there lamenting that wage growth isn't keeping up with inflation. But when it comes to a soft landing, your slowly eroding paycheck is a good sign: "The most encouraging recent step on the narrow path to a soft landing has been the slowdown in nominal wage growth," Hatzius writes. He points to a few data sets, including Goldman's own aggregated business survey data on actual or expected wage changes, which has fallen from 5.5% wage growth to around 4% now. The Employment Cost Index also turned over in the third quarter after two years of steady increases. Also: Hatzius notes that GDP growth is slowing and the labor market is moderating in terms of fewer job openings and a falling quits rate. To be sure, the labor market is still quite strong. He calls this a "modest loosening." Asking rent prices are also slowing, according to private market data, as Hatzius notes. But that decline will take a while to show up in the official inflation numbers, as Fed chair Jerome Powell said last week. "[T]here will come a point at which rent inflation will start to come down. But that point is well out from where we are now," Powell said. Yes, but: No one really knows anything. "[T[he Fed is tightening aggressively, and we live in an exceptionally uncertain world in terms of both US politics and geopolitics," Hatzius writes.     A message from Upside This app is helping users treat themselves     Upside is on a mission to make sure that, even during expensive times, people still have a little extra money for a rainy day fund. The free app gets users cash back on: Gas. Groceries. Convenience stores. Restaurants. On average, users earn $148 annually. Download the free Upside app to start earning.     4. Bankruptcy courts get (a little) busier Data: Epiq Bankruptcy Analytics; Chart: Axios Visuals Household bankruptcy filings are ticking up, Axios' Kate Marino writes. Why it matters: The uptick shows the impact of the roll-off of COVID-era fiscal support like stimulus checks and expanded unemployment benefits. The flow of federal dollars that started soon after the pandemic helped some Americans stave off bankruptcy, at least for a while. Details: In October, there were 14,161 new cases, a 27% increase from the same month a year ago, according to Epiq Bankruptcy Analytics. Yes, but: Don't fret about the state of the American consumer just yet — bankruptcy filings remain far below pre-pandemic norms. Back in 2019, the monthly average was 23,570, or about 66% higher than last month's tally. The bottom line: Analysts expect that as the Fed raises interest rates, events like bankruptcies are bound to head back to more normalized levels.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. 🚙 Charted: Used car prices keep dropping Data: Cox Automotive; Chart: Axios Visuals Sky-high used car prices are losing altitude fast, Matt writes. Why it matters: The remarkable climb in used vehicle prices was an early and ultra-visible driver of COVID-era inflation. State of play: The Manheim Used Vehicle Value Index, a gauge of wholesale market prices for used vehicles, dropped for the fifth-straight month. Prices are down more than 15% since they peaked in January at an average of nearly $24,000. Wholesale prices are typically a leading indicator of the prices consumers pay, so this suggests better deals on vehicles could be coming to auto lots soon. Yes, but: While prices for goods — such as used cars — were the key drivers of inflation in 2021, more recently, costs for services and housing are the driving force behind persistently fast price increases. The bottom line: The inflation fight continues. But with car prices dropping, and house prices starting to crack as well, it suggests the Fed now has some serious traction in its fight to stabilize prices.     A message from Upside How to fight inflation with your everyday spending     The Upside app pays you back a little from each purchase to help offset rising costs. On average, users earn $148 annually. You can get cash back at: Gas stations. Convenience stores. Grocery stores. Restaurants. Take back control of your budget and download the free Upside app.   🚲 1 thing Matt likes: Please enjoy this footage of Czech cycling enthusiasts showing off their "penny-farthing" skills in period-appropriate garb. ✉️ Was this email forwarded to you? Sign up here for your daily dose of Axios Markets! ✨ Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. Why stop here? Let's go Pro. Join the thousands of professionals using Axios Pro to keep up with the companies, deals and trends changing their industries.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. 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