What you should know this week

Election day is just around the corner. The looming question remains how a victory by Donald Trump or Kamala Harris will shape the market narrative for the rest of the year and beyond.

Investors will soon find out the answer when Americans go to the polls on Tuesday. In the week before the election, the S&P 500 (^GSPC) fell about 1.37%, while the tech-heavy Nasdaq Composite (^IXIC) fell 1.5%, although it hit its first record close since June this week. Meanwhile, the Dow Jones Industrial Average (^DJI) fell just over 0.1%.

It's not the only big event of the week. On Thursday, the Federal Reserve will announce its latest policy decision, with markets largely expecting the central bank to cut interest rates by a quarter of a percentage point.

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

With the 2024 presidential election scheduled for Tuesday, November 5, one of the most important potentially market-moving events that strategists have discussed all year is finally here.

But it was an unusual election year for markets. Analyzing the S&P 500's average intraday trading range, Carson Group chief market strategist Ryan Detrick found that last October was the second-least volatile month leading to an election in 50 years.

Research from Bespoke Investment Group shows the S&P 500 had its best start to an election year since 1932, with a 20% year-to-date return for the benchmark index through the end of October.

Nevertheless, election day itself is considered a risk event for the markets. Speculation is mounting that a “Trump trade” has formed in markets as betting odds of the former president winning the election have increased. However, some market strategists are not convinced that there is any clear indication of what outcome investors will expect next Tuesday.

“I think the market would do well with Harris,” Eric Wallerstein, chief market strategist at Yardeni Research, told Yahoo Finance. “I think the market would do well with Trump. I don’t think the stock market really thinks there’s any chance of winning the presidency.”

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

“It would be positive if these elections were completed, regardless of the outcome,” 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.”

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 3, 2024. REUTERS/Brendan McDermid/File Photo · Reuters / Reuters

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

The key question heading into the meeting is what the Federal Reserve will (or won't) signal about its plans for future meetings. As data continues to suggest the economy is on a solid growth path while inflation's path to the Fed's 2 percent target remains bumpy, markets have moved to price in fewer rate cuts next year than previously expected , when the Fed cut interest rates by half a percentage point on September 18th. As of Friday, markets expect around three fewer interest rate cuts by the end of next year than previously assumed.

Read more: What the Fed's interest rate cut means for bank accounts, CDs, loans and credit cards

Seth Carpenter, chief global economist at Morgan Stanley, doesn't think markets will get much more clarity about the Fed's course in the coming week.

“Strong 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 forcing the Fed to act. We do not expect Powell to provide specific guidance on the size or frequency of future cuts. Policy remains data dependent, and neither the September 50 cut (basis point) nor the November 25 cut (basis point) indicates the future pace.

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

Ross Mayfield, investment strategist at Baird, told Yahoo Finance that the move in interest rates and the general focus on economic data driving them higher are overshadowing the prospects for another solid quarter of corporate earnings.

With 70% of the S&P 500 reporting quarterly results, the benchmark index expects earnings growth of 5.1% year-over-year. This would be the fifth consecutive quarter of earnings growth as the index continues to recover from the 2023 earnings recession.

“We experienced a two-year period where profits were stagnant,” Mayfield said. “They were volatile. Now profits are rising again. They exceed analysts' expectations quite significantly. Profit margins are increasing. So the overall picture looks pretty good.”

And this story seems to have continued in the fourth quarter. Analysts have cut their estimates 1.8% since the start of the reporting period in early October, according to FactSet data. This corresponds to the average decline in earnings over the last ten years.

“At a certain point, revenue has to take over,” Mayfield said. “I think we’re in a good financial position to achieve that.”

Weekly calendar

Monday

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

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

Tuesday (Election Day)

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

Earnings: Apollo Global Management (APO), Devon Energy (DVN), Ferrari (RACE), Super Micro Computer (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 prior); S&P Global US Composite PMI, October final (54.3 previous)

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 ending November 2 (221,000 expected, 216,00 ahead)

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

Friday

Economic calendar: University of Michigan Consumer Sentiment Preliminary November (71 Expected, 70.5 Previous)

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

What you should know this week

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