Stocks Finish in Red as December Rate Hike Case Strengthens

U.S. equities sold off again on Wednesday for the seventh consecutive loss as investors continue to brace for a possible Election Day update as Republican Party presidential hopeful Donald Trump closes in on Democratic rival Hillary Clinton.

Adding to the nervousness was a Federal Reserve policy statement that left the door open to a possible interest rate hike in December.

In the end, the Dow Jones Industrial Average lost 0.4%, the S&P 500 Index lost 0.9%, the Nasdaq Composite gave back 0.9% and the Russell 2000 ended the day 1.3% lower. Treasury bonds were stronger, the dollar was weaker, gold gained 1.6% to its best level in nearly a month and oil lost 2.9% on a record rise in inventories (14.4 million barrels, highest in 34 years of data) for its fourth straight loss.


Defensive consumer staples led the way by limiting their decline to 0.2%. Yield-sensitives including REITs, utilities, and telecoms were the laggards down 1.5%, 1.3%, and 1.2%, respectively.

Office Depot Inc (NASDAQ:ODP) gained 15.1% on a Q3 earnings beat driven by tax savings. Yelp Inc (NYSE:YELP) gained 9.9% on a 22% Q3 operating earnings beat on a 41% jump in local advertising. And payments processor Square Inc (NYSE:SQ) gained 6.4% on a Q3 earnings beat driven by stronger revenues and raised guidance.

Fitbit Inc (NYSE:FIT) fell 30% in after-hours trading after reporting in-line earnings and revenue but issuing forward guidance well below the consensus estimates. Facebook Inc (NASDAQ:FB) is down 4% in after-hours trading despite reporting a top- and bottom-line beat on solid user metrics.

On the economic front, the Fed’s statement was largely as expected noting household spending has been “rising moderately” while language related to the depressing effect on inflation energy prices was having was removed. All eyes are now on the upcoming Dec. 14 policy announcement, with futures market odds of a rate hike at 68%.

Technically, the Dow’s loss of the 18,000 level sets up a return to the summertime lows near its 200-day moving average should Trump’s rise in the polls continue. The Washington Post – ABC News poll has Trump and Clinton tied while polling in key battleground states remains within the margin of error. It’s coming down to the wire, although admittedly, Trump’s Electoral College path to victory is more difficult with states like Virginia and Pennsylvania acting like a firewall for Clinton.

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Still, fear is clearly on the rise as investors brace for a Trump upset and the imposition of his aggressively nationalist trade, immigration, and reform policies. The CBOE Volatility Index is on the rise.

Precious metals are moving higher. And crude oil is tumbling, boosting the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers to a 19% gain since recommended on October 26.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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