4 Reasons Why November Will Be Another Volatile Month on Wall Street

With just three trading days left in October, Wall Street’s three major indexes are on track to end the month with heavy losses as surging bond yields and fresh uncertainty surrounding the future path of the Federal Reserve’s interest rates rattled investors.

The Nasdaq Composite is down the most, plunging 4.5% during the month, weighed down by the ‘Magnificent Seven’ group of mega-cap stocks. The tech-heavy index is now officially in correction territory, down more than 10% from its July high.

Meanwhile, the benchmark S&P 500 and the blue-chip Dow Jones Industrials Average are on pace to close the month 3.5% and 2.2% lower, respectively.

As a brutal October comes to an end, history says investors should brace for further turmoil in November, which historically is one of the most volatile months of the year for the stock market.

According to research from LPL Financial, there are more 1%-or-larger swings in November in the S&P 500 than in any other month besides October.

Source: LPL Financial

With investors continuing to gauge the outlook for interest rates, the economy, and inflation, a lot will be on the line in the month ahead.

1. Fed Rate Decision

After raising borrowing costs by 525 basis points since March 2022, the Federal Reserve is widely expected to keep interest rates unchanged at the conclusion of its two-day policy meeting at 2:00PM ET on Wednesday, November 1.

As of Friday morning, financial markets see a 99% chance of the central bank holding rates at current levels next week, according to the Investing.com Fed Rate Monitor Tool. That would leave the benchmark Fed funds target range in between 5.25% and 5.50%, which is the highest level since January 2001.Source: Investing.com

Beyond the expected rate decision, all eyes will be on Fed Chairman Jerome Powell, who will hold what will be a closely watched press conference shortly after the release of the FOMC statement, as investors look for fresh clues on how he views inflation trends and the economy.

In remarks made before the Economic Club of New York last week, Powell left the door open to an additional rate hike, noting that the U.S. economy's strength and tight labor markets could require tougher borrowing conditions to control inflation.

The Fed chief added that he doesn’t think rates are too high now.

“Does it feel like policy is too tight right now? I would have to say no,” he said.

• Prediction:

While the Fed is all but certain to hold off on hiking rates at next week’s policy meeting, I believe that Powell will maintain a hawkish tone and leave the door open to a potential rate increase in December as inflation remains stubbornly high and the economy holds up better than expected.

I believe the Fed chair will reiterate the central bank’s commitment to moving forward carefully with additional policy firming, while stressing that policymakers will remain dependent on incoming economic data in determining their next move.

Many investors believe that the Fed is unlikely to raise rates any further, bringing an end to the central bank's most aggressive tightening cycle in decades. Traders see just a 20% chance of the Fed raising rates by 25bps in December, Investing.com’s data showed.

Meanwhile, financial markets are pricing in a small chance of a rate cut as early as the Fed's March 2024 meeting, with expectations of a cut at about 50% for May.

With that being said, the market could be in for a rude awakening if economic growth continues to be robust and inflation reaccelerates to the upside in the months ahead.

2. U.S. Jobs Report

The first big piece of data to come out after the Fed’s policy meeting will be the U.S. jobs report and it will likely be key in determining the U.S. central bank’s next move.

The Labor Department will release the highly anticipated October nonfarm payrolls report on Friday, November 3, at 8:30AM ET. Forecasts center around a continued solid pace of hiring, even if the increase is smaller than in previous months.

The consensus estimate is that the data will show the U.S. economy added 172,000 positions, according to Investing.com, slowing from jobs growth of 336,000 in September.Source: Investing.com

The unemployment rate is seen holding steady at 3.8%, not far from a recent 53-year low of 3.4%, a level not seen since 1969. It's worth noting that the unemployment rate stood at 3.7% precisely a year ago in October 2022.

Meanwhile, average hourly earnings are expected to rise 0.3% month-over-month, while the year-over-year rate is forecast to increase 4.2%, which is still way too hot for the Fed.

• Prediction:

In my opinion, the October employment report will emphasize that the labor market remains on strong footing and support the view that additional rate hikes will be necessary to cool the economy.

Powell recently noted the labor market and economic growth may need to slow to ultimately achieve the Fed’s goal of bringing inflation back down to its 2% target.

“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Powell said. “Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy."

Indeed, U.S. government data released Thursday showed that the U.S. economy grew at a faster-than-expected 4.9% annual rate in the third quarter amid surprisingly robust consumer spending, potentially keeping a much-feared recession at bay.

All in all, economic growth has held up much better than expected in the face of higher rates. Despite widespread expectations of a looming downturn, the economy has proven considerably more resilient than anticipated by many on Wall Street amid a solid labor market and strong consumer spending.

4. U.S. CPI Report

The U.S. government will release the October CPI report on Tuesday, November 14, at 8:30AM ET and the numbers will likely show that prices continue to increase at a pace nearly twice the central bank’s target.

As per Investing.com, the consumer price index is forecast to rise 0.4% on the month, matching the same increase in September. The headline annual inflation rate is seen rising 3.8%, accelerating from a 3.7% annual pace in the previous month.

The closely watched Consumer Price Index has come down substantially since the summer of 2022, when it peaked at a four-decade high of 9.1%, however inflation is still rising far more quickly than the 2% rate the Fed considers healthy.

Meanwhile, the October core CPI index - which does not include food and energy prices - is expected to rise 0.2%, after edging up 0.3% in September. Estimates for the year-on-year figure call for a 4.0% gain, compared to September’s 4.1% reading.

The core figure is closely watched by Fed officials who believe that it provides a more accurate assessment of the future direction of inflation.

Powell recently reiterated the Fed’s commitment to bringing inflation under control, saying that while the path is likely to be bumpy and take some time, “my colleagues and I are united in our commitment to bringing inflation down sustainably to 2%.”

• Prediction:

I believe the CPI report will underscore the material risk of a fresh increase in inflation, which is already running far more quickly than what the Fed would consider consistent with its 2% target range.

Indeed, some inflation alarms are ringing again amid the ongoing rally in energy and food commodity prices. A lasting spike in fuel and food costs would unravel progress on the inflation front.

In addition, new concerns have emerged surrounding the war between Israel and Hamas, which could rattle global energy markets if the conflict escalates to destabilize the oil-rich Middle East.

As such, inflation levels could remain elevated for a more extended duration than is presently anticipated by financial markets, potentially forcing the Fed to raise interest rates and then leave them at higher levels for longer.

Taking that into consideration, the Fed’s inflation battle is far from over.

4. Q3 Earnings Season Continues

Investors await a flood of earnings in November as Wall Street’s third quarter reporting season continues.

Apple (NASDAQ:AAPL) will be the last ‘FAAMG’ stock to report quarterly results when it releases fiscal third quarter results after the market closes on Thursday, November 2.

Other notable companies joining AAPL in reporting earnings next week include Advanced Micro Devices (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM), Palantir (NYSE:PLTR), PayPal (NASDAQ:PYPL), Block (NYSE:SQ), Coinbase (NASDAQ:COIN), Shopify (NYSE:SHOP), Roku (NASDAQ:ROKU), Pinterest (NYSE:PINS), Airbnb (NASDAQ:ABNB), McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), Caterpillar (NYSE:CAT), Eli Lilly (NYSE:LLY), Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), and DraftKings (NASDAQ:DKNG).

The following week sees high-profile names like Walt Disney (NYSE:DIS), Uber (NYSE:UBER), Rivian (NASDAQ:RIVN), Occidental Petroleum (NYSE:OXY), and Roblox (NYSE:RBLX) report earnings.

Retailers then take center stage in the second half of the month when heavyweights Walmart (NYSE:WMT), Target (NYSE:TGT), Home Depot (NYSE:HD), Lowe’s (NYSE:LOW), TJX Companies (NYSE:TJX), Macy’s (NYSE:M), Best Buy (NYSE:BBY), and Costco (NASDAQ:COST) deliver their latest financial results.

Another key name to watch will be Nvidia (NASDAQ:NVDA), whose Q3 results are scheduled to come out after the closing bell on Tuesday, November 21.

Expectations for Q3 earnings have drastically improved, with analysts now projecting year-over-year growth of 2.6% for profits at S&P 500 companies compared to a 0.3% decline forecast at the start of the earnings season, according to FactSet.

Be sure to check out InvestingPro to stay in sync with the market trend and what it means for your trading decisions.

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Disclosure: At the time of writing, I am short on the S&P 500, Nasdaq 100, and Russell 2000 via the ProShares Short S&P 500 ETF (SH), ProShares Short QQQ ETF (PSQ), and ProShares Short Russell 2000 ETF (RWM). Additionally, I have a long position on the Energy Select Sector SPDR ETF (NYSE:XLE) and the Health Care Select Sector SPDR ETF (NYSE:XLV).

I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.

The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.