The investment community had to be happy to see the calendar turn to the month of November last week. That is because October was a brutal month for those long equities. Last month, the volatility in the market spiked to levels not seen in quite some time, as investors were unnerved by several events that cast a cloud of uncertainty over the equity market. That prompted a big response from the bears in October. The month of November started last Thursday with the major equity indexes on a two-day winning streak and the bulls then made it three in a row with some notable buying on the first trading day of the month. That three-day winning streak brought some hope for those long stocks, but such sentiment was quickly dashed with another bearish showing on Wall Street to end the week.

The market was quite volatile on Friday. The session started with the major equity indexes nicely higher on strong employment data from the Labor Department (more below) and comments from President Trump that the trade negotiations between his Administration and China—which have been a thorn in the side of investors since March 1st, when the trade dispute between the world’s two-largest economies began—may produce a new trade agreement shortly. The buying, though, did not have any sustaining power and the market quickly and forcefully reversed course. Prompting the selloff were comments from President Trump’s top economic adviser Larry Kudlow that a trade agreement between the U.S. and China was not as close as the President made it appear. The trade commentary, along with a few disappointing high-profile quarterly reports, most notably from technology titan Apple (AAPL – Free Apple Stock Report) after Thursday’s closing bell, weighed on equities, specifically the large-cap sector. For the day, the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index were down 110, 77, and 17 points, respectively. The losses were pared somewhat into the close by further commentary from President Trump that U.S. and China were speaking on trade. For the session, nearly all of the major equity groups were in negative territory, with the day’s biggest laggard being the technology sector. The disappointing Apple news was the main culprit behind the group’s weak showing.

Along with the increased trade rhetoric and the Apple data, the big news for investors was the jobs report for the month of October. The Labor Department reported that October nonfarm payrolls jumped by 250,000, far exceeding the consensus expectation of 188,000 positions. Additionally, the unemployment rate held steady at 3.7% and the hourly wage ticked up $0.05. Perhaps, the report was too good for Wall Street, as it may have increased sentiment that the Federal Reserve could ramp up its monetary tightening in 2019. Historically, equities don’t react well to interest-rate hikes. On Friday, bond yields rose following the employment report, another concern for investors. Still, our sense is that the employment data, which included a notable increase in the labor participation rate, will be good for stocks. It is another sign that the U.S. economy is strong, and hourly wages, though up 3.1% over the last 12 months, did not rise as much as expected last month. This may actually keep worries about inflation a bit contained over the next few weeks. But with earnings season starting to wind down this week, Wall Street will be searching for a catalyst to set in motion an end of the year stock market rally. That said …

We think the volatility will continue this week. There are several events scheduled over the next few days that have the potential to unnerve investors, not the least of which is the midterm elections tomorrow. If the Democrats were to gain control of the House of Representatives it could potentially hurt President Trump’s pro-business agenda, which many pundits think would not be a good outcome for Corporate America and Wall Street. Investors will also be closely watching the international trade news and the Federal Reserve, which kicks off its two-day monetary policy meeting on Wednesday. The consensus is that the central bank will hold interest rates steady this week, while suggesting that another monetary policy tightening is likely in December, especially given the recent strong economic data. Speaking of the business beat, we will get the latest report on nonmanufacturing activity from the Institute for Supply Management at 10:00 A.M. EST today.

With less than an hour to go before the commencement of another busy week for Wall Street, the equity futures are indicating a relatively flat, though slightly bearish, opening for the U.S. stock market. Overseas, the trading has been mixed thus far. The main indexes in Asia finished lower overnight, while the European bourses are now in positive territory as trading moves into the second half of the session on the Continent. European stocks were able to reverse initial losses, helped briefly by a newspaper report stating that a Brexit agreement was imminent. That said, the ongoing anxiety surrounding global trade talks, particularly between the United States and China, and rising U.S. interest rates may continue to dampen the investment’s community risk appetite and increase the volatility in the equity market. Stay tuned.

– William G. Ferguson

 At the time of this article’s writing, the author did not have positions in any of the companies mentioned.