US Stocks Poised for a Positive Start as Election Looms and Fed Rate Cut Expected
The US stock market is gearing up for a potentially positive start to the week, fueled by a mix of factors, including a strong performance by tech giants, the anticipated Federal Reserve rate cut, and the looming presidential election. While the S&P 500 and Dow Jones ended October with their five-month winning streak broken, the tech-heavy Nasdaq Composite closed in the green, bolstered by strong earnings from tech giants.
The upcoming US presidential election on Tuesday is casting a shadow over the market. The race between Democratic candidate Kamala Harris and Republican nominee Donald Trump is projected to be tight, leading to heightened uncertainty and potential volatility. The outcome of the election will have significant implications for US economic policy and financial markets.
Adding to the mix is the widely anticipated rate cut from the Federal Open Market Committee (FOMC) this week. The CME Group’s FedWatch tool indicates a 96% probability of a rate cut, suggesting a near-unanimous expectation among market analysts. The Fed’s decision and commentary from Chair Jerome Powell will be closely watched for clues about the central bank’s future monetary policy.
Pre-Market Performance
In pre-market trading on Monday, the SPDR S&P 500 ETF Trust (SPY) gained 0.20% to $572.21, while the Invesco QQQ ETF (QQQ) rose 0.22% to $488.50. These gains suggest a positive sentiment among investors heading into the trading day.
Insights from Last Week
Last week, oil prices rebounded after a sharp decline, driven by delays in production increases by the Organization of the Petroleum Exporting Countries (OPEC). The S&P 500 saw mixed performance, with sectors like utilities, energy, and real estate experiencing losses, while consumer discretionary and information technology sectors performed well.
Analysts’ Perspectives
Analysts are divided on the potential impact of the US election on the dollar. ING analyst Francesco Pesole suggests a Harris victory could lead to a weakening of the US dollar. Conversely, Deutsche Bank analyst Jim Reid expects the dollar to remain relatively unaffected by a Trump win, but its performance may depend on the composition of Congress.
Despite the uncertainty surrounding the election, analysts are unanimous in their expectations for a Fed rate cut. Deutsche Bank’s Jim Reid believes the Fed will likely deliver a 25 basis point cut on Thursday, regardless of the election outcome. EY Chief Economist Gregory Daco expects Fed Chair Powell to act as a voice of reason and guide the FOMC towards a prudent monetary policy easing.
Market Outlook
Nathan Peterson, Director of Derivatives Analysis at the Schwab Center for Financial Research, predicts a volatile and bearish week for the markets. However, he acknowledges that the outcome of the election and the Fed’s tone could influence market direction. A decisive election result and a less hawkish stance from the Fed could potentially lead to a stock market rally.
Key Economic Data Releases
The week ahead is packed with important economic data releases. On Monday, factory order data will be published. Tuesday will see the release of US trade deficit data and ISM services data. Wednesday will feature the final US services purchasing managers’ index (PMI). Thursday will bring initial jobless claims data, preliminary productivity numbers, and the FOMC’s rate decision. Finally, Friday will see preliminary consumer sentiment data and a speech by Fed Governor Michelle Bowman on banking regulations.
Stocks in Focus
Several stocks are expected to be in the spotlight this week. Trump Media & Technology Group Corp. (DJT) will be closely watched in the lead-up to the election, following increased volatility and a decline in its stock price last week. Tesla Inc. (TSLA) shares will be monitored after the company reported a decline in China sales in October. Nvidia Corp. (NVDA) will join the Dow Jones Industrial Average, replacing Intel Corp. (INTC). Apple Inc. (AAPL) will be in focus after Warren Buffett’s Berkshire Hathaway reduced its stake in the iPhone maker. Boeing Co. (BA) machinists will vote on a proposed deal that could end a seven-week strike. Finally, investors will be watching for earnings results from Constellation Energy Corporation (CEG), Marriott International, Inc. (MAR), and Wynn Resorts, Limited (WYNN).
Commodities, Bonds, and Global Equity Markets
Crude oil futures rallied in the early New York session, fueled by OPEC’s announcement of a delay in production increases. The 10-year Treasury note yield eased slightly. Major Asian markets closed higher on Monday, while European stocks also showed strength in early trading.
Looking Ahead
With the US presidential election looming and a potential Fed rate cut on the horizon, the US stock market is expected to experience volatility in the coming days. The outcomes of both events will play a major role in shaping market direction and investor sentiment.
