After an extremely volatile year of trading, the month of November features four important market events that could help calm the markets—or push the CBOE Volatility (VIX) back above 40 for the first time since the spring of 2020. 

The first major event of November arrives imminently, with the Federal Reserve scheduled to meet on Nov. 1 and 2. After that, the focus shifts to the midterm elections on Nov. 8. 

Next up is the October inflation report on Nov.10, and the Black Friday shopping event on Nov. 25—the latter of which typically serves as a key barometer of consumer confidence heading into the winter holidays.

Let’s dive in.

Federal Reserve Meeting

November is poised to start with a bang as the Federal Reserve is expected to render its upcoming report on U.S. monetary policy on Nov. 2.

At the top of the list will be the organization’s latest decision on interest rates, which have been a key focus for Wall Street in 2022.

Most projections suggest that the Federal Reserve will raise benchmark interest rates by an additional 0.75% during the November meeting. That would take the target in the federal funds rate to 3.75-4.00%—the highest level in this benchmark since 2008.

The Federal Reserve also raised rates by three-quarters of a percentage point during their last meeting at the end of September. The current rate hike cycle started back in March of this year when the U.S. central bank started raising short-term interest rates to help tame inflation. 

Comments made by Fed leaders in the wake of the Nov. 2 decision will be equally important. The Federal Reserve is set to meet one more time this year—on Dec. 13-14—and investors and traders will be looking for fresh insight into the central bank’s intentions for that mid-December meeting.

If the Fed’s ongoing guidance on rates is interpreted as dovish, that could help calm the markets during the remainder of Q4. On the other hand, a hawkish stance could have the opposite effect, and catalyze a fresh bout of volatility in the financial markets.

Currently, most projections suggest the Fed will raise rates by another half-percentage point during the December meeting.

Midterm Elections

On November 8, citizens of the U.S. will vote in the first major election since November 2020, when Joe Biden became the 46th President of the United States.

Considering the dramatic aftermath of that election, and widespread discontent over the result, the upcoming midterms represent an important moment in American history.

The results of the 2022 midterm elections will have long-lasting political consequences and will play a big role in the legislative future of the country. But for the financial markets, the passing of the midterm elections could have an equally important impact. 

Traditionally, volatility in the financial markets tends to drop sharply in the wake of the midterm elections. Moreover, historical data shows that market rebounds often materialize after the midterms conclude, and many investors and traders will be watching closely to see whether that pattern plays out again in 2022.

To read more about past behavior in the stock market during the midterms, check out this new Luckbox article.

Latest Inflation Report

Shortly after the conclusion of the midterm elections, the government will release its latest report on inflation. This update is expected on Nov. 10, when inflation data for the month of October is scheduled to be released.

The prices for goods and services in the U.S. have been rising at a faster pace than usual for about 18 months now, and that has made the topic of inflation a hot one in both kitchens and statehouses across the country.

Inflation is an economic concept that refers to the natural tendency for prices to increase over time. And like most things, inflation is best in moderation—meaning a little inflation is generally viewed as a good thing—but too little or too much can be a recipe for disaster.

At the end of the third quarter in 2021, the U.S. economy was running at an annualized rate of inflation of about 5.4% (over the last 12 months), as compared to an average annualized rate of under 2% over the previous ten years. 

However, in 2022, inflation has been running even hotter than in 2021, which is why the Federal Reserve was forced to start raising benchmark interest rates. 

Last month, the Consumer Price Index (CPI)—a key barometer of inflation—clocked in at 8.2%. That means consumer prices were up roughly 8.2% as compared to one year ago. Importantly, these are some of the highest inflation figures on record since the early 1980s.

The upcoming report on Nov. 10 will be key for the financial markets because most market observers believe that a slowdown in inflation would theoretically represent a potential turning point in the current rate hike cycle. 

And most believe that a pivot by the Federal Reserve—from hawkish to dovish—could be bullish for both the stock and bond markets. 

Black Friday

Black Friday refers to the Friday after Thanksgiving and traditionally marks the start of the Christmas shopping season.

Christmas shopping can serve as a type of organic stimulus for the economy because retail sales increase dramatically between Thanksgiving and Christmas. In 2021, it’s estimated that holiday sales totaled roughly $850 billion dollars.

Black Friday is important because sales from that day can foreshadow the overall strength of the holiday shopping season. It also provides important insight into prevailing consumer sentiment.

Most projections suggest that Black Friday in 2022 won’t be a record-breaking event. And the holiday shopping headwinds mirror some of the same economic problems that have been observed throughout the last 18 months—elevated prices (i.e. inflation) and global supply-chain issues. 

Some retailers appear to have imported holiday merchandise earlier than usual this year, likely as a workaround for ongoing supply-chain issues. As a result, retailers are said to be sitting on extra inventory, which may motivate them to offer deeper discounts. 

Black Friday is especially important in 2022 because the U.S. economy has been teetering on the edge of a potential recession. Weak sales on Black Friday would almost certainly add to existing concerns about the performance of the U.S. economy in 2023.

Lowered expectations for Black Friday in 2022 could also provide the basis for a surprise beat. If Black Friday sales are much stronger than anticipated, that would likely be interpreted as a huge positive for the underlying U.S. economy. 

Sale figures from Black Friday could also serve as an important indicator for the Federal Reserve, as it weighs whether to raise rates further in its Dec. 13-14 meeting. 

For the stock market, strong sales on Black Friday would likely serve as a strong incremental positive for the retail sector—especially those companies experiencing an unusually strong surge in demand.

For daily updates on everything moving the markets this November, monitor TASTYTRADE LIVE—weekdays from 7 a.m. to 4 p.m. CDT.

Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to support@luckboxmagazine.com.