NEW YORK (Reuters) – US President Donald Trump's favorite report on his presidency could miss him at a critical juncture.
A screen shows a chart of the Dow Jones Industrial Average at the New York Stock Exchange (NYSE) floor in New York, USA, October 24, 2018. REUTERS / Brendan McDermid
Since Trump's inauguration, US equities have been doing well, a fact he has repeatedly praised, but which stumbled heavily in October. The S & P 500 .SPX has fallen 7.6 percent and is on its way to its biggest monthly Trump Presidency decline in less than two weeks, before voters decide whether its Republican Party will retain control of the Congress ,
The Republicans have emphasized Trump's responsibility to the economy and the recent record highs in the stock markets in their campaigns. It is unclear whether a last-minute decline in the market will be a compelling factor for voters.
A Reuters / Ipsos poll, which ended on October 16, found that 51 percent of respondents supported Trump's dealings with the economy, compared with 45 percent who support his overall job performance.
But with only 12 days left, few anticipate a continued decline in equities ahead of Election Day amid a suddenly shaky global risk environment.
"The market is expected to retire by early November," said Gail Dudack, chief investment strategist for the Dudack Research Group. "This period fits in well with the midterm elections."
The last time US equities were so close the month before a national election was October 2008, when the financial crisis was in full swing and the S & P 500 fell 16.9 percent.
This year, the Democrats retained control of the Congress and Barack Obama ended eight years of Republican control of the White House.
Measured by their election dates until the first months of their governments, Trump's stock market still has an upper hand compared to Obama's.
The S & P 500 has risen almost 26 percent since Trump's election on November 7, 2016. In contrast, the index between Obama's election and the Midterms 2010, when the Republicans retook the house, rose less than 4 percent.
The US stock market was hit by a lukewarm startup season with Caterpillar Inc (CAT.N.), Ford Motor Co (F.N) and 3M Co (MMM.N) warn that their growth could be undermined by trade tariffs that undermine Trump's typical politics in his attempt to revive US production.
"The trade concerns we've been worried about this year are finally being implemented in the market," said Kirk Hartman, global chief investment officer at Wells Fargo Asset Management.
In all, 179 of the 500 stocks in the S & P 500 fell 20 percent or more from their recent highs, putting them in bear territory. Another 174 shares fell between 10 and 20 percent and have left a correction.
At the same time, the Federal Reserve is expected to raise interest rates further in order to curb inflation, with the unemployment rate close to the 40-year low and the US economy still benefiting from the fiscal stimulus of Republican-led tax cuts in December.
Higher interest rates often slow down the economy by making loans for mortgages, credit cards and other loans more expensive.
Sales of new single-family homes in the US fell to a two-year low, the Commerce Department said Wednesday, a decline in economics to the nearly 1 percentage point increase in 30-year fixed mortgage rates to date.
"The people are getting very nervous, that's the big money managers, the mistake here is with the Fed, in my opinion they have pushed interest rates too high and too fast and keep talking about doing more," said Mark Grant, chief -Global Strategist at B. Riley FBR Inc.
Dallas Federal Reserve Bank President Robert Kaplan said Wednesday he expects the central bank to raise rates three times to 2.75 percent to 3 percent in 2019, reflecting the three economists interviewed by Reuters.
Trump has begun to increasingly attack the Fed for raising interest rates.
Despite the recent market turmoil, some investors said the fear of a lower sell-off was exaggerated.
"It takes a while to break a volatility spike and there is a bottom-up process, but the market fundamentals are higher," said Steve Chiavarone, a portfolio manager at Federated Investors, who said his company remains particularly bullish -Cap US stocks that have lost nearly 14 percent to date.
"The market now offers better values and we want to buy it."
Still others expect that large investors such as pension funds and mutual funds will continue to outsource shares as interest rates rise and the future growth of the US economy appears more uncertain.
"There is an old saying that retail opens the market and institutions close it," said Nicholas Colas, co-founder of Datatrek Research. "That tells me a real institutional sale, it means it's not over yet."
Reporting by David Randall; Edited by Dan Burns and Meredith Mazzilli