The US stock market’s record rally could face the scariest part of 2024 in the coming week, with a dizzying array of risks on the horizon.
Much will depend on the earnings reports of major tech companies, volatility in U.S. debt markets, Friday’s monthly jobs numbers for October and the homecoming of a contentious presidential election.
“It’s a commotion that is certainly affecting the interest rate market,” Dec Mullarkey, head of investment strategy and asset allocation at SLC Management, said of the election. “In the past month, the 10-year period has really passed.”
Election fears have been expressed in the Treasury market and in the gold GC00 ahead of the Nov. 5 election, Mullarkey said, especially as polls indicate a very tight presidential race.
To see: Gold is not behaving as normal. What that means for investors.
The S&P 500 index SPX was higher Monday despite Tesla Inc.’s TSLA dip. after a weekly gain of about 22% after surprising Wall Street with third-quarter earnings numbers and an optimistic outlook.
The focus now is on Alphabet Inc.’s earnings. GOOG on Tuesday, followed by Microsoft Corp. MSFT and Meta Platforms Inc. META on Wednesday, and by Apple Inc. AAPL and Amazon.com Inc., AMZN on Thursday. AI chipmaker Nvidia Corp NVDA reports results on November 20.
“It’s a big week, with the ‘Magnificent Seven’ being very important earnings reports,” said Eric Beiley, executive director of asset management at Steward Partners. “We need to see these companies deliver strong results as shares trade at extremely high valuations.”
Mega-cap tech stocks appear to be back in vogue, despite a broadening of the rally earlier this year to include mid-cap and even small-cap stocks that could benefit from the Federal Reserve’s move toward rate cuts.
The Russell 2000 index RUT of small-cap stocks fell 3% last week, while the information technology sector XX:SP500.45 of the S&P 500 rose 0.2%, according to FactSet.
To see: Fed rate cuts were supposed to boost small-cap stocks. What’s holding them back?
“Big tech can be a trick or a treat,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.
As if the stakes weren’t high enough, Apple and Amazon’s third-quarter results this year also coincide with Halloween, which can be one of the more volatile days of the year as it falls within the usual portfolio rebalancing period. falls at the end of the month.
“Stocks are in the middle of earnings season,” said Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management.
Fed officials are still hoping the labor market can walk a fine line by neither cooling down too much nor warming up again in a way that would reignite inflation concerns.
Friday’s monthly jobs report for October will bring that debate back into focus, even as Wall Street analysts have warned that the numbers could be skewed by striking workers at Boeing Co. BA and by two powerful recent hurricanes.
Surprisingly strong jobs data in September helped allay earlier concerns about a possible sharp downward spiral for the economy. But fears remain that higher wages, while generally supportive, could also fuel inflation and throw cold water on the Fed’s plans to cut rates in a meaningful way.
“It will have some impact unless it’s a big negative or big positive reading,” Truist’s Lerner said. “I think one day the jobs report will be the only thing that matters – and then it will all be about the election.”
While the U.S. economy was a bright spot in 2024, not all households emerged from the COVID crisis with the same degree of financial resilience.
Read: The US economy has not only avoided a recession. It grows faster.
The sharp sell-off in US Treasuries since September can be attributed to a resilient economy, which forced the bond market to reverse previously expected Fed rate cuts. Another growing factor is concern about the impending elections.
Ten-year Treasury yields rose modestly to 4.25% on Monday, days after posting their biggest 26-day increase since last October, according to Dow Jones Market Data. Higher returns make it more expensive for consumers, companies and the government to borrow.
On that front, Wall Street sees little hope that Vice President Kamala Harris or former President Donald Trump will tackle the large US government deficit. A number of billionaire investors, including Paul Tudor Jones, have recently sounded the alarm about America’s debt burden and the potential impact of tariffs and tax cuts if Trump regains the White House.
Read: Trump Tariffs: Why Stock Market Investors Are Underestimating the Impact
For now, election jitters are limited to US debt and the gold market, according to SLC Management’s Mullarkey. While not a “gold virus,” he said increased buying by global central banks, which helped push gold prices to record highs in October, deserves attention.
Trump’s campaign included threats about tariffs, as well as punishing countries that abandon the dollar. “Gold is a respected alternative to hedge against tail risk,” Mullarkey said, adding that the precious metal could rise again in value if post-election results add more tension.
The three major US stock indexes were higher on Monday. The Nasdaq Composite Index COMP rose 0.7%, while the Dow Jones Industrial Average DJIA rose 0.6% and the S&P 500 was up 0.5%.