Stocks Rise as Traders Map Out Election Game Plan: Markets Wrap

(Bloomberg) — Stocks rose at the start of the busiest week for corporate earnings, with traders also gearing up for the US election and key economic data that will set the stage for the next Federal Reserve decision. 

All major groups in the S&P 500 advanced, with the exception of energy shares that joined a plunge in oil. Airlines rallied. Shares of cryptocurrency companies surged, with Bitcoin extending its October gains. Trump Media & Technology Group Corp. soared alongside the implied odds in betting platforms like PolyMarket of Donald Trump returning to the White House.

A victory for Trump would be more beneficial for stocks and Bitcoin relative to his Democratic opponent, while a Kamala Harris presidency would bring slightly more relief to housing costs, according to a Bloomberg Markets Live Pulse survey. Some 38% of the 350 respondents see equities accelerating a year from now under the Republican candidate, versus 13% under the Democrat.

“Markets have been extremely active over the past month as traders have juiced up the already ebullient scenario baked into equity valuations, adding improved odds of a Republican sweep to the list of goodies discounted,” said Lisa Shalett at Morgan Stanley Wealth Management.

Callie Cox at Ritholtz Wealth Management says the pre-election jitters still haven’t shown up in the stock market. The S&P 500 hasn’t had a 1% up or down day this month. If that continues to be the case, it will be the first October without a move that big since 2017, she said. It’d also be the first October of an election year without a 1% move since 1968.

“We’re heading into a busy two weeks,” Cox said. “The election conversation will be the loudest, but the packed slate of earnings and economic data could be what markets care about the most. And the results could be noisy, especially from the jobs side.”

A week before Fed gathers to reflect on the appropriate tempo of rates cuts, data is set to show underlying resilience in the US economy and a temporary hiccup in jobs growth. Investors are also awaiting results from firms accounting for nearly 42% of the S&P 500’s market capitalization, including several big techs like as Apple Inc., Microsoft Corp. and Meta Platforms Inc.

The S&P 500 rose 0.4%. The Nasdaq 100 added 0.3%. The Dow Jones Industrial Average gained 0.7%. The Russell 2000 of small caps climbed 1.7%.

Treasury 10-year yields rose five basis points to 4.29%. A $69 billion auction of two-year notes tailed slightly. The yen dropped as much as 1% before paring losses as investors mulled the implications of the Liberal Democratic Party and its coalition partner losing their majority. 

“This week’s megacap tech earnings and jobs data will provide plenty of potential fuel for near-term market momentum, but it remains to be seen whether investors will want to sit on their hands until after next week’s election, especially given the volatility around the past two,” said Chris Larkin at E*Trade from Morgan Stanley.

Equities sold off the week before the 2016 and 2020 elections and rallied sharply after them, he noted.

To Saira Malik at Nuveen, it is critical to remain focused on long-term investment goals and attentive to the broader economic backdrop and company fundamentals, as election-driven volatility has historically been short-lived. 

“With that in mind, corporate earnings, inflation and the direction of interest rates should continue to be the structural drivers of financial markets,” she said. “This was evident in the recent backup in US Treasury yields after they bottomed in mid-September following the Federal Reserve’srate cut. Since then, the uptick in yields, paired with underlying fundamentals, may have created another attractive entry point for one of our favored fixed-income sectors.”

Although the polls are extremely tight, and it’s anyone’s race to win, the stock and bond markets have shown recent momentum that appears to favor a result that puts former President Trump back in the White House, according to Anthony Saglimbene at Ameriprise. 

“Government bond yields have risen, the US dollar has strengthened, and areas of the stock market that would benefit from less regulation and lower taxes have ground higher,” he said. “Some of this is related to a strong economy and growing profits, while some of this momentum may be attributed to investors increasingly discounting a Trump victory.”

Off to the races or sell the news?

“In our view, the market can perform well through year-end whether Vice President Harris or former President Trump wins in November,” he said. “We believe fundamental conditions in the US are solid, seasonality factors/historical trends are favorable for stocks, and known election results, which let investors finally move on from the election, could see major equity averages press higher into the end of the year.” 

Investors expect large caps to lead under all election outcomes except a Republican sweep, according to a survey conducted by 22V Research.

“Under a Republican sweep, investors think small caps will lead. Protectionist tariffs, and friendlier tax policies for US earnings, may help explain the dynamic of expectations for higher rates and small cap outperformance under a Republican sweep,” th firm said.

Based on the firm’s client interactions, investors are focused on the implications for tariffs under Trump more so than deficit spending, for which there are safeguards, 22V said. And under a Trump presidency, investors expect 10-year yields to increase. More if there is a Republican sweep. Expectations for those bonds are split between higher and lower under a Harris presidency.

Wall Street veteran Ed Yardeni says the approaching US election could augur the return of the market’s bond vigilantes as the Treasury Department readies new debt issuance plans.

It’s a call the founder of Yardeni Research, who famously coined the phrase in the 1980s to describe investors selling bonds to set the US government back on a course of fiscal restraint, has made before. 

“It’s a conceivable scenario that the bond vigilantes are definitely mounting up,” Yardeni told Bloomberg Television on Monday. “There’s no discussion by either candidate about doing anything to reduce the deficit to deal with the debt, to deal with the exploding net interest expense of the government.” 

Corporate Highlights:

• Apple Inc., heralding a “new era” for its devices, started rolling out its first set of Apple Intelligence features and introduced a new 24-inch iMac desktop with a faster, AI-focused M4 processor.
• Facebook owner Meta Platforms Inc. is working on developing a search engine that crawls the web for information to provide to people using its AI chatbot, the Information reported Monday.
• McDonald’s Corp. says Quarter Pounders will return to menus at all restaurants this week after ruling out beef patties as the source of a multistate E. coli outbreak that has sickened dozens and left one person dead.
• Boeing Co. launched a nearly $19 billion share sale, one of the largest ever by a public company, to address the troubled planemaker’s liquidity needs and stave off a potential credit rating downgrade to junk.
• Volkswagen AG plans to close at least three factories, eliminate thousands of jobs and slash wages for tens of thousands of German workers as Europe’s biggest automaker tries to halt its tailspin.
• The fate of Johnson & Johnson’s latest push to use bankruptcy courts to end thousands of cancer lawsuits tied to its iconic baby powder now hinges on a high-stakes trial in January.

Key events this week:

• US job openings, Conference Board consumer confidence, Tuesday
• Alphabet earnings, Tuesday
• Eurozone consumer confidence, GDP, Wednesday
• US GDP, ADP employment, pending home sales, Wednesday
• Meta Platforms, Microsoft earnings, Wednesday
• US Treasury Department holds quarterly refunding announcement of bond-auction plans, Wednesday
• China Manufacturing and non-manufacturing PMI, Thursday
• Bank of Japan rate decision, Thursday
• Eurozone CPI, unemployment, Thursday
• US personal income, spending and PCE inflation data, initial jobless claims, Thursday
• Amazon, Apple earnings, Thursday
• China Caixin manufacturing PMI, Friday
• US employment, ISM manufacturing, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4% as of 12:30 p.m. New York time
• The Nasdaq 100 rose 0.3%
• The Dow Jones Industrial Average rose 0.7%
• The Stoxx Europe 600 rose 0.5%
• The MSCI World Index rose 0.4%
• Bloomberg Magnificent 7 Total Return Index rose 0.4%
• The Russell 2000 Index rose 1.7%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2% to $1.0820
• The British pound rose 0.2% to $1.2984
• The Japanese yen fell 0.6% to 153.22 per dollar

Cryptocurrencies

• Bitcoin rose 1.5% to $68,732.45
• Ether rose 1% to $2,512.86

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.29%
• Germany’s 10-year yield was little changed at 2.28%
• Britain’s 10-year yield advanced two basis points to 4.25%

Commodities

• West Texas Intermediate crude fell 5.6% to $67.79 a barrel
• Spot gold fell 0.1% to $2,743.85 an ounce

This story was produced with the assistance of Bloomberg Automation.

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