Potential Stock-Supportive Developments, But...

While much uncertainty still hangs over key issues, potential for positive outcomes should keep the stock market in a range over the next few weeks.  Agreements on Brexit and the US/China Trade Negotiations may be reached by late-October to mid-November.  Johnson is still aiming for a Brexit agreement before October 31 and Trump wants a US/China agreement signed at the Asia-Pacific Economic Cooperation meetings that take place in Chile on Nov. 16 and 17.  Even as uncertainty regarding these outcomes persist, the possibility of a Fed rate cut at the October 29-30 FOMC Meeting should support the market.  These developments, however, may not be enough to allow stocks to move decisively through resistance, as the Impeachment Inquiry moves toward resolution.  

With Fed officials still citing downside risks, but saying policy decisions will be made "meeting to meeting," the most important new information leading up to the FOMC Meeting will probably be the Markit PMIs.  The Euro and German Flash estimates, due this Thursday, likely need to move close to 50 to raise the possibility officials will change their assessment of downside risks.  And, officials may take their cue  on the significance of downside risks or the need to cut further by the  Treasury yield curve, which has built in a 25 BP cut in October  (see my blog of September 8).

Even if the Fed cuts by 25 BPs in October, the market may very well take it to be the last one for awhile.  The Treasury yield curve looks to have built in a low probability of further cuts for the next few years.   As a result, any anticipatory run-up in stocks may be given back if the Fed signals the cut is likely to be followed by a pause.  However, the yield curve is still pointed down slightly over the next 5 years, probably reflecting in part the possibility of an economically disruptive election of a Democrat president. (see my blog of September 22).  

US economic data related to manufacturing, like this week's September Durable Goods Orders and the following week's October Employment Report, may be negatively impacted by the GM strike.  So, weak prints should be discounted.  While the GM strike continues to be a drag this month, it will reverse and be a positive for growth once workers return to their jobs -- motor vehicle production will climb to make up for the lost output during the strike.

The Impeachment Inquiry could weigh on stocks if it gathers steam.  Headlines and predictions of impeachment or not may become market-important.  If it looks like the Senate will not go along, then the House deliberations and vote will be meaningless unless they are seen affecting the probability of the 2020 elections.  If the Senate looks like it will vote against Trump, it will be a big negative for the stock market.