What you need to know this week

Election day is approaching. The question remains how the victory of Donald Trump or Kamala Harris will affect the market situation for the rest of the year and beyond.

Investors should soon find out the answer: Americans will 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 hitting its first record close for the week with June. Meanwhile, the Dow Jones Industrial Average (^DJI) fell just over 0.1%.

This is not the only major event of the coming week. The Federal Reserve will announce its latest policy decision on Thursday, with markets largely expecting the central bank to cut interest rates by a quarter of a percentage point.

Earnings season continues with the week headlined by reports from Palantir (PLTR), Super Micro Computer (SMCI), Arm (ARM), Qualcomm (QCOM) and Moderna (MRNA).

Election risk?

One of the major market-moving events that strategists have been discussing all year has finally arrived: the 2024 presidential election, set for Tuesday, November 5th.

But it was an abnormal election year for markets. Analyzing the average intraday trading range of the S&P 500 Index, Carson Group chief market strategist Ryan Detrick found that last October was the second least volatile month before an election in the last 50 years.

Zooming out even further, research from Bespoke Investment Group shows the S&P 500 had its best start to an election year since 1932, with the benchmark index returning 20% ​​year-to-date through the end of October.

However, Election Day itself is considered a risk event for markets. Rumors have emerged that a “Trump Trade” is forming in the markets as the chances of the former president winning the election have increased. But some market strategists aren’t sure there’s a clear picture of what outcome investors will expect on Tuesday.

“I think the market could handle Harris,” Eric Wallerstein, chief market strategist at Yardeni Research, told Yahoo Finance. “I think the market would do very well with Trump. I don’t think the stock market is really pricing in any presidential chances.”

Franklin Templeton chief market strategist Stephen Dover told Yahoo Finance that the key for markets may simply be getting through the event itself.

“Just settling this election, whichever way it goes, would be positive,” Dover said.

Baird market strategist Michael Antonelli agreed, telling Yahoo Finance that the riskiest election scenario is “one where we just don’t know the winner.”

Then the Fed comes

Markets widely expect the Federal Reserve to cut interest rates by 25 basis points when it announces its next policy decision on November 7.

A key issue discussed at the meeting is what the Federal Reserve will (or will not) signal its plans for future meetings. With data continuing to show the economy heading for robust growth while inflation’s path to the Fed’s 2% target remains rocky, markets have moved to forecast smaller interest rate cuts next year than originally expected when the Fed cut rates are doubled. per percentage point on September 18th. As of Friday, markets were anticipating about three fewer rate cuts before the end of next year than previously thought.

Read more: What does the Fed’s rate cut mean for bank accounts, certificates of deposit, loans and credit cards?

Morgan Stanley chief global economist Seth Carpenter doesn’t think markets will get much clarity on the Fed’s actions next week.

“The strength of economic growth gives the Fed patience as it allows for gradual policy easing,” Carpenter wrote in a note to clients on Friday. “Neither inflation nor unemployment is putting pressure on the Fed. We do not expect Powell to provide specific guidance on the size or frequency of future cuts. Policy remains data driven, and neither the Sept. 50 (basis point) cut nor the Nov. 25 (basis point) cut is indicative of future pace.”

Profits look stable

Market debate over how much easing the Fed will implement next year has sent the 10-year Treasury yield (^TNX) soaring since the Fed’s last meeting in September. On Friday, the 10-year note gained about 7 basis points to close at 4.36%, its highest level since early July.

Baird investment strategist Ross Mayfield told Yahoo Finance that rate moves and a general focus on the economic data that drives them higher are overshadowing what promises to be another solid quarter of corporate results.

With 70% of S&P 500 companies reporting quarterly results, the benchmark index posted year-over-year earnings growth of 5.1%. This would mark the fifth straight quarter of earnings growth as the index continues to recover from the earnings slump seen in 2023.

“We went through a two-year period where revenues were flat,” Mayfield said. “They were volatile. Now our income is growing again. They are quite confidently exceeding analysts’ expectations. Profit margins are growing. So overall the situation looks pretty good.”

And that story looks set to continue into the fourth quarter. Since the start of the period in early October, analysts have cut estimates by 1.8%, according to FactSet. This is in line with the average revenue decline seen over the past 10 years.

“At some point, profits have to take the baton,” Mayfield said. “I think we are in a good position from a revenue perspective to do this.”

Weekly calendar

Monday

Economic data: Factory Orders September (expected -0.5%, previous -0.2%), Durable Goods Orders September (expected -0.8%, previous -0.8%)

Earnings: Berkshire Hathaway (BRK-A, BRK-B), Cleveland-Cliffs (CLF), Constellation Energy (CEG), Goodyear (GT), Hims & Hers (HIMS), Marriott International (MAR), Palantir (PLTR), Wynn ( VINN)

Tuesday (Election Day)

Economic data: ISM Services Index, October (expected 53.8, previous 54.9)

Earnings: Apollo Global Management (APO), Devon Energy (DVN), Ferrari (RACE), Super Micro Computer (SMCI)

Wednesday

Economic data: MBA mortgage applications, week ended November 1 (-0.1% previously); S&P Global PMI in the US services sector, final October (expected 55.3, previously 55.3); S&P Global US Composite PMI, final October (previous 54.3)

Earnings: Arm Holdings (ARM), AMC (AMC), Aurora Cannabis (ACB), Celsius Holdings (CELH), CVS (CVS), Elf (ELF), Novo Nordisk (NVO), Qualcomm (QCOM), Toyota (TM)

Thursday

Economic data: Federal Reserve Interest Rate Decision (0.25% rate cut expected) Initial Jobless Claims, Week Ended November 2 (expected 221,000, previously 216,000)

Earnings: Affirm (AFRM), Airbnb (ABNB) Block (SQ), Datadog (DDOG), DraftKings (DKNG), Halliburton (HAL), Hershey (HSY), Moderna (MRNA), Pinterest (PINS), Rivian (RIVN), The Trade department (TTD)

Friday

Economic calendar: University of Michigan Consumer Sentiment, November Preliminary Data (expected 71, previous 70.5)

Earnings: Canopy Growth (CGC), Icahn Enterprises (IEP), Sony (SONY)