Midterm elections yielded a favorable response from the market midweek and a split Congress – with the Republicans gaining a lead in the Senate and the Democrats taking the House. With the House and Senate no longer under the control of the same party, additional fiscal stimulus will likely be met with more opposition. Therefore, the actions of the Federal Reserve – which is in tightening mode – are in the spotlight. While many would like the Fed to place a pause on future rate hikes, the strong Producer Price Index report on Friday provided more data that would support a tightening stance. Three large wildfires spread across California causing significant damage and the death of 12 people.
US large cap stocks had a strong rally on Wednesday after the election results. These gains were offset on Friday as a 2.9% rise in the headline Producer Price Index increased the likelihood of more rate hikes. Bond yields were little moved with corporate bond prices falling a bit in sympathy with stocks. After a strong bit of recovery, emerging markets dove again last week – now down roughly 15% year-to-date. US crude oil prices plunged to six-month lows. The commodity is experiencing its lengthiest losing streak since 1984 due to decreased demand and increased production. Typically, falling oil prices are indicative of a slowing global economy.
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