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U.S. Stocks Brace for a Turbulent Week: Key Earnings, Job Data, and Election Concerns Ahead

U.S. Stocks Could Face Scariest Week Yet of 2024: Here’s Why

The U.S. stock market’s record-setting rally is gearing up for a tumultuous week ahead as several significant risks emerge on the horizon. Investors are bracing for a series of pivotal events, including earnings reports from major technology companies, increasing volatility in U.S. debt markets, the release of October’s jobs data, and nearing the finale of a contentious presidential election.

Market Sentiment and Earnings Reports

Recent statements from Dec Mullarkey, head of investment strategy and asset allocation at SLC Management, capture the prevailing sentiment around the upcoming election. He notes, “It’s a tossup that’s definitely bothering the rates market,” clarifying that the sudden increase in the 10-year Treasury yield is a reflection of these anxieties. This week, with the election looming on November 5, signs of nervousness are surfacing within the Treasury market and even among assets such as gold, where prices have been elevated.

While the S&P 500 index closed lower on Friday, it received a significant boost from Tesla Inc.’s (TSLA) remarkable 22% weekly gain following impressive third-quarter earnings. Investors are now turning their focus to forthcoming earnings reports from tech giants. Alphabet Inc. (GOOG) is set to share its results on Tuesday, followed by Microsoft Corp. (MSFT) and Meta Platforms Inc. (META) on Wednesday, with Apple Inc. (AAPL) and Amazon.com Inc. (AMZN) reporting on Thursday. AI chip maker Nvidia Corp (NVDA) will announce its earnings on November 20.

Eric Beiley, executive managing director of wealth management at Steward Partners, emphasizes the importance of this week: “It’s a big week, with the ‘Magnificent Seven’ being very important earnings reports,” advising that these companies need to deliver strong results given the high valuations at which stocks are currently trading. Despite a broadening rally earlier this year, which also included small-cap stocks that could benefit from a Federal Reserve shift towards interest rate cuts, the Russell 2000 index fell 3% over the past week, in contrast to a 0.2% uptick in the S&P 500’s information technology sector, according to FactSet.

Focus on Employment Data

As the market braces itself for earnings, Friday’s jobs report for October promises to add another layer of complexity to investor sentiment. The Federal Reserve is trying to maintain a delicate balance between a cooling labor market and the risk of reigniting inflation. Recent data indicating strong job numbers in September had soothed fears of an economic downturn.

However, caused in part by widespread strikes at Boeing Co. (BA) and the fallout from two major hurricanes, this October’s jobs data could be misleading. Keith Lerner, co-chief investment officer at Truist Advisory Services, suggests that the jobs report’s influence may be short-lived, stating, “I think the jobs report will be the only thing that matters for one day – then it’s all about the election.” Concerns persist that rising wages could fuel inflation and pose challenges for the Federal Reserve’s approach to future rate cuts.

Election Jitters and Market Reactions

While the U.S. economy has shown unexpected resilience, not all households have bounced back equally from the financial toll of COVID-19. The sharp selloff in U.S. government debt since September reflects this resilience, which has led the bond market to adjust expectations regarding potential Fed rate cuts. Recent increases in 10-year Treasury yields, which reached 4.23% as of Friday, highlight the market’s apprehensions as it grapples with the looming election.

Beyond economic factors, the election itself has brought heightened anxiety to the markets. The potential outcomes involving either Vice President Kamala Harris or former President Donald Trump could have significant ramifications for America’s fiscal policies. Billionaire investors, such as Paul Tudor Jones, have raised alarms regarding America’s growing debt load and implications of tax cuts or import tariffs if Trump returns to office.

The impact of election uncertainty is also visible in gold prices, which have seen increased buying activity from global central banks, driving prices to record highs in October. Mullarkey warns that the volatile political landscape could further influence the precious metal market, citing, “Gold is a well-respected alternative or hedge against tail risks.”

Closing Market Analysis

As of Friday, the three major U.S. stock indexes closed mostly lower, with the Nasdaq Composite Index (COMP) extending its streak with a slight gain, while the Dow Jones Industrial Average (DJIA) and S&P 500 each fell by 2.7% and 1%, respectively. Despite these fluctuations, all three indexes remain within a striking distance of their previous record levels.

With a forecast of earnings from big tech companies, important employment data, and the ever-present specter of the election looming, investors enter a critical week filled with potential volatility and uncertainty. How the market navigates these events could set the tone for the remainder of 2024.

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