Markets Prepare for Presidential Election and Fed Meeting: Key Insights This Week
Investors brace for potential market shifts as Election Day approaches and the Federal Reserve announces its latest policy decision
With Election Day fast approaching, the market is on edge, eagerly anticipating how a potential victory for Donald Trump or Kamala Harris might influence financial narratives for the remainder of the year. As Americans prepare to cast their votes next Tuesday, investors are looking for clues about what the outcome could mean for their portfolios.
In the lead-up to the election, the S&P 500 saw a decline of about 1.37%, while the tech-heavy Nasdaq Composite fell by 1.5%, despite achieving its first record close since June earlier in the week. The Dow Jones Industrial Average slipped just over 0.1%, reflecting the cautious sentiment in the markets. But the election isn’t the only significant event this week; on Thursday, the Federal Reserve will announce its latest policy decision, with many anticipating a quarter-point interest rate cut.
The Election’s Impact on Markets
The 2024 presidential election is expected to be a pivotal moment for the markets, particularly given the unusual volatility leading up to this election year. According to Ryan Detrick, chief market strategist at Carson Group, October marked the second-least volatile month before an election in the past half-century for the S&P 500. Additionally, research from Bespoke Investment Group reveals that the S&P 500 had its best start to an election year since 1932, boasting a remarkable 20% year-to-date return by the end of October.
Despite these positive indicators, many investors view Election Day as a risk factor. As the odds shift in favor of Trump, speculation around a "Trump Trade" has emerged, but some market analysts, like Eric Wallerstein from Yardeni Research, argue that the market could react positively regardless of whether Harris or Trump comes out on top. “I think the market would do fine with either candidate,” Wallerstein stated. Franklin Templeton's chief market strategist, Stephen Dover, emphasized the importance of having a clear election outcome, saying, “Just having those elections settled, whichever way it goes, would be positive.”
The Federal Reserve’s Meeting
As the election draws near, the Federal Reserve's upcoming meeting on November 7 adds another layer of anticipation. Many analysts expect the Fed to cut interest rates by 25 basis points. A critical aspect of this meeting will be the Fed's communication regarding future rate changes. Current economic indicators suggest solid growth, but the path to achieving the Fed's 2% inflation goal remains uneven. This uncertainty has led markets to expect fewer rate cuts next year than initially predicted.
Morgan Stanley’s chief global economist, Seth Carpenter, believes the Fed may not provide much clarity on its future plans during this meeting. “The strength in growth allows for a gradual approach to policy easing,” Carpenter noted, emphasizing that the Fed remains data-dependent.
Earnings Season Continues
Despite the focus on the election and interest rates, corporate earnings reports are also in the spotlight. Approximately 70% of S&P 500 companies have reported their quarterly results, with an overall earnings growth rate of 5.1% year-over-year. This marks the fifth consecutive quarter of growth, signaling a rebound from the earnings recession experienced in 2023.
Baird’s investment strategist, Ross Mayfield, highlighted the solid performance of corporate earnings, noting that companies are beating analyst expectations and profit margins are expanding. He stated, “After a two-year period of flat and volatile earnings, we are now seeing growth again, which bodes well for the future.”
Key Economic Data This Week
As the week unfolds, here are some important economic events and earnings reports to watch:
Wednesday:
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Economic Data: MBA Mortgage Applications, S&P Global US Services PMI
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Earnings Reports: Arm Holdings, AMC, Aurora Cannabis, Celsius Holdings, CVS, Elf, Novo Nordisk, Qualcomm, Toyota
Thursday:
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Economic Data: Federal Reserve interest rate decision (expected 0.25% cut), Initial Jobless Claims
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Earnings Reports: Affirm, Airbnb, Block, Datadog, DraftKings, Halliburton, Hershey, Moderna, Pinterest, Rivian, The Trade Desk
Friday:
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Economic Data: University of Michigan Consumer Sentiment
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Earnings Reports: Canopy Growth, Icahn Enterprises, Sony
With Election Day fast approaching, investors are on high alert, eager to see how the showdown between Donald Trump and Kamala Harris will impact the market. A Trump win could reinforce a business-friendly environment, while a Harris victory might usher in a new economic direction.
On top of that, the Federal Reserve is gearing up to announce its interest rate decision, and many are speculating that a rate cut could be on the horizon. These developments have the potential to shake up stock prices and reshape investment strategies, making it all the more important for investors to stay tuned as events unfold.
