Election day is almost here. The looming question remains how a victory by Donald Trump or Kamala Harris will shape the market story for the rest of the year and beyond.
Investors should know the answer soon as Americans head to the polls next Tuesday. In the week before the election, the S&P 500 (^GSPC) fell about 1.37%, while the tech-heavy Nasdaq Composite (^IXIC) lost 1.5% despite posting its first record close since June this week. Meanwhile, the Dow Jones Industrial Average (^DJI) fell just over 0.1%.
It’s not the only big event of the coming week. On Thursday, the Federal Reserve will announce its latest policy decision, with markets largely anticipating the central bank to cut interest rates by a quarter of a percentage point.
Earnings season continues with a week highlighted by reports from Palantir (PLTR), Super Micro Computer (SMCI), Arm (ARM), Qualcomm (QCOM) and Moderna (MRNA).
One of the biggest potentially market-moving events that strategists have been discussing all year has finally arrived with the 2024 presidential election, scheduled for Tuesday, November 5.
But it has been an anomalous election year for the markets. Analyzing the S&P 500’s average intraday trading range, Carson Group chief strategist Ryan Detrick found that last October was the second-least volatile election-leading month in the past 50 years.
Zooming out further, research from Bespoke Investment Group shows that the S&P 500 had the best start to an election year since 1932, with the benchmark index returning 20% year-to-date through the end of October.
Still, Election Day itself is considered a risky event for the markets. Speculation has arisen that a ‘Trump trade’ has formed in the markets as the odds of the former president winning the election have risen. But some market strategists are not convinced there is clarity on the outcome investors will be aiming for on Tuesday.
“I think the market would do well with Harris,” Eric Wallerstein, chief market strategist at Yardeni Research, told Yahoo Finance. “I think the market would do well with Trump. I don’t think the stock market is really pricing in presidential opportunities.”
Franklin Templeton chief strategist Stephen Dover told Yahoo Finance that the key for markets could simply be getting past the event itself.
“It would be positive if those elections were settled, no matter how it turns out,” Dover said.
Baird market strategist Michael Antonelli agreed, telling Yahoo Finance that the riskiest scenario of the election “is one where we simply don’t know the winner.”
American flags at the front of the New York Stock Exchange hang behind the street signs at the corner of Wall Street and Broad Street on October 24, 2024 in New York City. (J.David Ake/Getty Images) ·J. David Ake via Getty Images
Markets widely expect the Federal Reserve to cut rates by 25 basis points when it announces its next policy decision on November 7.
The main question at the meeting is what the Federal Reserve will or will not signal about its plans for future meetings. Given that data continues to point to an economy on track for solid growth, while inflation’s path to the Fed’s 2% target remains bumpy, markets have priced in fewer rate cuts in the coming year than initially thought when the Fed cut rates in half. one percentage point on September 18. From Friday, markets see about three fewer rate cuts than previously thought through the end of next year.
Read more: What the Fed’s interest rate cut means for bank accounts, CDs, loans and credit cards
Seth Carpenter, Morgan Stanley’s chief economist, doesn’t think markets will get much more clarity on the Fed’s stance next week.
“The strength of growth gives the Fed patience as it allows for a gradual easing of policy,” Carpenter wrote in a letter to clients on Friday. “Neither inflation nor unemployment is forcing the Fed to act. We do not expect Powell to provide specific guidance on the size or pace of future cuts. The policy remains dependent on the figures, including the figures of September 50 [basis point] cut nor the 25th of November [basis point] cuts indicate the future pace.”
The market’s debate over the extent to which the Fed will ease in the coming year has sent 10-year Treasury yields (^TNX) soaring since the last Fed meeting in September. The 10-year yield added about 7 basis points on Friday to close at almost 4.36%, the highest level since early July.
Baird investment strategist Ross Mayfield told Yahoo Finance that the interest rate move and the overall focus on the economic data driving them higher is overshadowing what will be another solid quarter of corporate results.
Now that 70% of the S&P 500 have reported quarterly results, the benchmark index is targeting annualized earnings growth of 5.1%. This would mark the fifth consecutive quarter of earnings growth as the index continues to recover from the 2023 earnings recession.
“We went through a two-year period where profits were flat,” Mayfield said. “They’ve been volatile. Now earnings are back on the rise. They’re exceeding analyst expectations by a pretty solid level. Profit margins are expanding. So the big picture is things are looking pretty good.”
And that story also seems to remain intact in the fourth quarter. Since the start of the period in early October, analysts have cut their estimates by 1.8%, according to FactSet data. This corresponds to the average profit decline over the past ten years.
Economic data: ISM services index, October (53.8 expected, 54.9 earlier)
Income: Apollo Global Management (APO), Devon Energy (DVN), Ferrari (RACE), Super Micro Computer (SMCI)
Wednesday
Economic data: MBA mortgage applications, week ending November 1 (-0.1% prior); S&P Global US services PMI, October final (55.3 expected, 55.3 earlier); S&P Global US composite PMI, October final (54.3 prior)
Income: Arm Holdings (ARM), AMC (AMC), Aurora Cannabis (ACB), Celsius Holdings (CELH), CVS (CVS), Elf (ELF), Novo Nordisk (NVO), Qualcomm (QCOM), Toyota (TM)
