Republicans Return to the White House; Fed Rate Decision on Deck

Votes are still being tallied, but former President Donald Trump has been declared the victor of yesterday’s presidential race after securing?several swing states including Pennsylvania, North Carolina and Georgia.?Republicans have also secured control of the Senate 52 to 42, while according to several outlets,?it could be weeks before the outcome for the House is determined.??

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Speaking to supporters at 2:30 a.m. ET this morning, Trump said, “We made history for a reason tonight.” "This will truly be the golden age of America. This is a magnificent victory for the American people that will allow us to 'Make America Great Again' for all Americans. Success will bring us together. We are going to start by all putting 'America First.' We have to fix it. I will not let you down. America's future will be bigger, better, bolder, richer, safer and stronger than it has ever been before.”?

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Trade remains among Trump’s top priorities with promises to implement a series of tariffs and import restrictions aimed to?increase domestic growth and promote reshoring. The Trump campaign also made promises on?tax breaks for corporations and individuals, growing domestic energy production and eliminating excess government spending.?

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The market appears to be responding positively to the election outcome with the?Dow soaring 1,300 points to a record, and the Russell 2000 jumping 6%.?The dollar hit a one-year high and Bitcoin surged past $75,000, hitting an all-time high. Longer-run yields, meanwhile, continue to climb, reflecting both heightened expectations for?domestic growth, and growing concerns over increased budget deficits and stubbornly sticky inflation.

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The 10-year UST yield is up 19bps at 4.46% as of 9:11 a.m. ET.

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As the country continues to digest the outcome of the election, the Fed has begun its two-day policy meeting.?Following an outsized 50bp cut in September, the Fed is widely expected to continue along a path to easier money policy albeit at a reduced pace with a more tempered pace of 25bps this week.

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The September dot plot indicated the majority of officials see an additional 50bps in cuts this year and 100bps more next year, although nearly as many indicated a reduced forecast of just 25bps or no further cuts in the current year. With no updated release at the November meeting, market participants will be parsing through the statement and listening closely to the press conference for any indications as to what Fed officials are forecasting for the final policy meeting of the year and looking out further to 2025.

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Back on the economic front, yesterday, the U.S. trade deficit jumped 19.2% from $70.8b to $84.4b in September, the widest since early 2022. In the details of the report, the value of imports increased 3.0% to $352.31b, and exports fell 1.2% in September to $267.95b.

Also yesterday, the ISM Services Index unexpectedly rose from 54.9 to 56.0 in October, the fourth consecutive month of expansion (a reading above 50) and the highest reading since May 2022.

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In the details of the report employment jumped from 48.1 to 53.0, the highest reading since August 2023 and averaging 49.3 over the past six months, and supplier deliveries rose 4.3 points to 56.4 in October, the highest reading since July 2022. On the other hand, new orders declined two points to 57.4 in October, prices paid ticked down from 59.4 to 58.1, and the change in inventories decreased from 58.1 to 57.2 in October. Also, business activity declined from 59.9 to 57.2, a two-month low, and backlog of orders fell from 48.3 to 47.7 in October.

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This morning, MBA mortgage applications fell 10.8% in the week ending November 1 following a 0.1% decrease the week prior. The 30-year mortgage rate, meanwhile, rose 8bps to 6.81%, the highest since July.

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Tomorrow, initial jobless claims are expected to rise from 216k to 223k in the week ending November 2. Also tomorrow, Q3 nonfarm productivity and unit labor costs reports will be released, along with wholesale inventories and consumer credit.

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Later in the week, on Friday, the preliminary November University of Michigan Consumer Sentiment Index is expected to increase from 70.5 to 71.0.

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-Lindsey Piegza, Ph.D., Chief Economist

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