What you need to know this week

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 elections, the S&P 500 (^GSPC) fell about 1.37%, while the tech-heavy Nasdaq Composite (^IXIC) lost 1.5% despite hitting its first high since June this week. Meanwhile, the Dow Jones Industrial Average (^DJI) fell by just over 0.1%.

It’s not the only big event of the coming week. The Federal Reserve will announce its latest policy decision on Thursday, 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), Supermicrocomputer (SMCI), Poor (ARM), Qualcomm (QCOM), and Moderna (MRNA).

Election risk?

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. In analyzing the S&P 500’s average intraday trading range, says Ryan Detrick, chief market strategist at Carson Group found that last October was the second least volatile month leading to elections in the past 50 years.

Zoom out 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.

Yet election day itself is considered a risk event for the markets. Speculation has ensured 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,” said Eric Wallerstein, chief 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.”

Stephen Dover, chief market strategist at Franklin Templeton told Yahoo Finance that the key for the markets could simply be to move 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.”

Then comes the Fed

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 there is data continued to show an economy on track for solid growth as inflation declines toward the Fed’s 2% target remains bumpyMarkets have priced in fewer interest rate cuts in the coming year than initially thought when the Fed cut rates by half a percentage point on September 18. As of Friday, markets see about three fewer rate cuts through the end of next year than previously thought.

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. Policy remains data-dependent, and neither the September 50 (bps) cut nor the November 25 (bps) cut indicates the future pace.”

Profits appear solid

Market debate over how much easing the Fed will implement over the next year has pushed 10-year Treasury yields higher (^TNX) has soared since the Fed’s last 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 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 that 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.

“At some point, revenue has to take over,” Mayfield said. “I think we’re in a good position revenue-wise to do that.”

Weekly calendar

Monday

Economic data: Factory orders, September (-0.5% expected, -0.2% earlier), durable goods orders, September (-0.8% expected, -0.8% earlier)

Income: Berkshire Hathaway (BRK-A, BRK-B), Cleveland Cliffs (CLF), Zodiac Sign Energy (CEG), Goodyear (G.T), Him and Her (IT), Marriott International (MAR), Palantir (PLTR), Wynn (WINE)

Tuesday (election day)

Economic data: ISM services index, October (53.8 expected, 54.9 earlier)

Income: Apollo Global Management (APO), Devon Energy (DVN), Ferrari-(RACE), Supermicrocomputer (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 positions (ARM), AMC (AMC), AuroraCannabis (ACB), Celsius holdings (CELH), CVS (CFS), elf (ELEVEN), Novo Nordisk (NVO), Qualcomm (QCOM), Toyota(T.M)

Thursday

Economic data: Federal Reserve interest rate decision (0.25% rate cut expected) Initial unemployment claims, week ending November 2 (221,000 expected, 216,00 earlier)

Income: Confirm (AFRM), Airbnb(ABNB) Block (SQ), Date Dog (DDO), DraftKings (DKNG), Halliburton (HALL), Hershey (HSY), Modern (MRNA), Pinterest (PIN), Rivaan (RIVN), The Trading Desk (T.D)

Friday

Economic calendar: Consumer confidence from the University of Michigan, preliminary November (71 expected, 70.5 earlier)

Income: Canopy growth (CGC), Icahn Companies (ELM), Sony (SONY)