(Tuesday market open) Wall Street is open for business and stocks rose early, but investors' minds are likely preoccupied with the U.S. election. Voting has begun in what's expected to be a tight race, with the final tally likely to take some time.
Volatility remains elevated this morning and could climb further if a decision is delayed. Futures trading tonight might get choppy as numbers arrive and the world anxiously awaits news.
"There is a very good chance that we will not know who has won the presidency when the market opens on Wednesday, and perhaps for a couple of days after that," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. "Remember, Joe Biden was not declared the victor in 2020 until the Saturday after the election. A delayed outcome just means that the race is really close and every ballot needs to be counted, but a period of uncertainty could increase market volatility."
Markets dislike uncertainty, raising chances that some investors might flee Wall Street for perceived safety. The dollar, gold, Treasuries and defensive sectors like staples and utilities typically are targets for investors seeking places to park their money in volatile times, though stability in any of those is far from guaranteed. The Japanese yen is another interesting asset to watch, as it can attract investors seeking places of supposed international stability if U.S. markets get shaky.
Whoever ends up in the White House, long-term investors should ignore the noise and continue to focus on their goals and financial plans. Presidential elections historically have had very little impact on markets—stocks, for example, are more influenced by corporate earnings, monetary policy, and economic data than the election outcome.
Once the election ends, attention turns quickly to the Federal Reserve meeting starting tomorrow and ending with a rate decision Thursday at 2 p.m. ET.
"We expect the Fed to cut the fed funds rate by 25 basis points at this week's meeting, but forward guidance may be cautious," said Kathy Jones, chief fixed income strategist at Schwab.
Treasury yields were stable early today after pulling back slightly Monday from four-month highs related to election uncertainty and a strong U.S. economy.
In pre-market trading, futures based on the S&P 500® index (SPX) rose 0.2%, and the Nasdaq-100® (NDX) gained 0.4%. Futures based on the Dow Jones Industrial Average® ($DJI) were up 0.1%.
Morning rush
- The 10-year U.S. Treasury yield (TNX) climbed two basis points to just below 4.33%.
- The U.S. Dollar Index ($DXY) slipped to 103.71.
- The CBOE Volatility Index® (VIX) slipped to 21.99, still well above recent lows but down from last week's peaks.
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WTI Crude Oil (/CL) added 0.66% to $71.94 per barrel after OPEC said it would delay an output hike.
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Bitcoin (BTC) climbed 1.9% to $68,755.
What to watch
The ISM Services PMI® soon after today's open is one of the more meaningful data points this week. The services part of the U.S. economy has been booming, something evident even in last week's mostly disappointing October nonfarm payrolls report that displayed job gains in sectors like health care and government positions. For ISM Services, analysts see a headline of 53.8%, down from 54.9% in September but still in expansion territory above 50%. The prices element of the report ticked up in September and remains in focus.
Treasury auctions are also in the mix this week, which could affect yields depending on demand for the new debt. A 10-year note auction takes place later today.
Volatility remains elevated for both stocks and bonds but could begin to dissipate if an election result becomes clear by Thursday or Friday. The VIX is well below where it was heading into the 2020 U.S. election, but bond volatility is well above normal.
Market breadth has deteriorated the last two weeks, with only 49% of S&P 500 stocks now trading above their 50-day moving averages, down from 75% three weeks ago. NDX breadth has also fallen and only 25% of semiconductor stocks trade above their respective 200-day moving averages. This suggests weakness below the surface despite Nvidia's (NVDA) massive rally this year.
Stocks in the spotlight
The earnings picture this week is quieter than last week when five mega caps reported. Travel and technology firms dominate, including Arm Holdings (ARM), Qualcomm (QCOM), Airbnb (ABNB), and Block (SQ). Qualcomm comes off a previous quarterly report showing double-digit year-over-year sales growth for its key smartphone processors business. At the time, it delivered what analysts considered strong guidance for the quarter it's reporting tomorrow.
Many companies reporting negative guidance for the near future suggest in their earnings calls that election uncertainty is affecting their business plans or those of their customers. This suggests that once election results are finally tallied, it could bring some relief to Wall Street and perhaps allow companies to provide investors more clarity about the long-term outlook. Analysts haven't made big changes to their earnings predictions over the last few weeks, perhaps also awaiting the outcome.
Tariffs and tax policy will both come under scrutiny once the election is decided.
"Tariffs are known to cause an inflation bump in the near term and slow economic growth in the long run," said Schwab's Jones. "There is usually retaliation by trading partners. It isn't clear how the Fed would react to that situation. Similarly with tax policy—there are a lot of different scenarios that could produce different outcomes. Big tax cuts could boost inflation and send the deficit higher. Tax hikes could slow the economy."
As for how the Fed might respond, keep in mind that the central bank has no power over fiscal policy made on Capitol Hill. "They can only react," Jones said. "Meanwhile, the bond market will assess the potential impact on inflation and/or deficits and react more quickly."
Control of Congress is arguably as important or more in policy matters as who wins the White House. It's possible that we won't know who controls the House for several days or even a week or two as the votes are counted.
Stocks on the move:
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Palantir (PLTR) climbed 14% ahead of the open after the company beat analysts' earnings and revenue estimates and provided guidance exceeding Wall Street's thinking. In its release, Palantir cited "unrelenting AI demand that won't slow down." Shares of chip makers bounced this morning, possibly in sympathy with Palantir.
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Boeing (BA) climbed 1.3% after workers voted to accept a new labor contract. A 53-day strike by 33,000 machinist and aerospace employees severely limited production at the jet builder. Workers will begin returning to their jobs tomorrow, Bloomberg reported.
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Marqeta (MQ) dropped 38% this morning after the financial services company cut its fourth quarter revenue forecast and received several analyst downgrades.
Talking technicals: After slipping below what had been long-term support at its 20-day moving average last week, the SPX now sits just above the 50-day moving average down near 5,700. The last time the SPX fell below that line, back in early September, it quickly recovered to make new highs. If it rallies, the 20-day moving average just above 5,800 could represent resistance. The NDX is in similar position nestled just above its 50-day.
Monday in review: Wall Street lost ground yesterday in a stagnant session awaiting the election. Losses were limited, though, as investors seemed in little mood to take on large new positions in either direction with so much uncertainty in the air. Though major indexes ended red, the Treasury market showed signs of life and the benchmark 10-year Treasury note (TNX:CGI) yield dropped from Friday's four-month highs. Yields move the opposite direction of Treasuries.
A look back: In their latest OnInvesting podcast, Liz Ann Sonders and Kathy Jones—Schwab's chief investment strategist and chief fixed income strategist—sort through some of the lessons learned over the last year and what's changed in the markets and economy.
Eye on the Fed
Early today, futures traders built in a 96% chance rates will fall 25 basis points at the Federal Open Market Committee (FOMC) meeting on November 6–7, based on the CME FedWatch Tool. There's a 4% chance of no cut.
Thinking cap
Ideas to mull as you trade or invest
Policy impact: If you're wondering how today's presidential election outcome might affect the market, check the latest election insights from Schwab's experts. Though who's in the White House historically doesn't have much impact (stocks have generally risen whichever party holds the presidency), issues like taxes, immigration, and the regulatory environment all could be affected by tomorrow's results. You can also read about how to follow futures trading trends tonight as the results roll in.
Getaway time? If you're ready to escape campaign ads and political news, it's worth noting that travel-related stocks have generally enjoyed a solid earnings season despite a miss here and there. Airline results generally surpassed Wall Street's expectations but haven't enjoyed an earnings-related bounce. They still fly below their spring altitude peaks despite positive guidance from the likes of United Airlines (UAL) and Southwest Airlines (LUV). Investor money has flowed more toward the high seas, with Royal Caribbean (RCL) shares up sharply the last month. "American households are wealthier than ever, with continued wage growth and low unemployment driving strong consumer spending," Royal Caribbean said on its recent earnings call. "Spend on leisure has grown a lot faster than most other spend categories over the past 12 months, with spend on travel increasing at a faster pace than other leisure categories." Expedia (EXPE) and Airbnb keep the travel theme rolling with earnings reports later this week. Last time out, the travel tidings from ABNB disappointed as the company said it was seeing slower global and U.S. demand. Shares have slightly recovered from that August report but still aren't back to where they were before the weak guidance.
Fed in wings: Though this week's Fed meeting is overshadowed by the election, it could be important looking ahead. A 25-basis point cut is baked in, and futures trading now points to high odds of another cut in December. Though last week's nonfarm payrolls report was a dud with just 12,000 jobs added in October, hurricanes and strikes mean the data weren't clean. That suggests the Fed won't necessarily hang its hat on those numbers, and not all members appear to approach this meeting with a particularly dovish attitude. "We had seven members of the Fed at the last meeting who wanted to go 25 basis points," said Schwab's Jones. "They eventually went 50 basis points, but you could see from the dot plot of projections that they were not totally enthusiastic about that." Jones thinks the December meeting is a tossup for the Fed. Thursday's meeting conclusion doesn't provide projection materials, either, making it even more difficult to say what might happen next.
Calendar
November 6: Expected earnings from CVS Health (CVS), Arm Holdings (ARM), Johnson Controls (JCI), Qualcomm (QCOM), and McKesson (MCK).
November 7: FOMC rate decision, Q3 preliminary productivity and preliminary labor costs, and expected earnings from Duke Energy (DUK), Halliburton (HAL), Airbnb (ABNB), Warner Brothers Discovery (WBD), and Rivian (RIVN).
November 8: University of Michigan Preliminary November Consumer Sentiment and expected earnings from Baxter (BAX) and Paramount Global (PARA).
November 11: No major earnings or data expected.
November 12: Expected earnings from Tyson Foods (TSN) and Spotify (SPOT).
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