Hey Investors,
Welcome back! With the U.S. elections just 11 days away, anticipation is high and markets are jittery. Here’s a concise breakdown of what’s on our radar and some stock ideas that might align with the key trends:
Election Outcome Uncertainty: What's at Stake?
Deadlock or Clear Victory?: The mainstream media paints the race between Kamala Harris and Donald Trump as a close contest, while betting markets like Polymarket indicate Trump has a 63.9% chance of winning. It’s worth noting that these bets are mostly from non-U.S. citizens, providing a different perspective.
Market Sensitivity: Investors should prepare for potential sector shifts based on the election outcome. A Trump win could favor pro-business sectors, while a Harris victory might bring policy stability, especially if Congress remains split.
1. Markets Betting on a Trump Win
Stock and Crypto Sentiment: The market appears to be pricing in a Trump win, as evidenced by gains in the crypto space, with stocks like Coinbase (COIN) and Riot Platforms (RIOT) seeing positive momentum.
Interest Rates & Inflation Expectations: The Fed’s recent cut in short-term rates contrasts with rising long-term yields like the 10-year Treasury. This suggests inflation concerns, possibly tied to potential tariffs under Trump. Real estate (XLRE ETF) and small-cap stocks (IWM ETF) might face pressure in this environment.
2. Historical Election Year Patterns: Buy the Dip?
Election Year Trends: Typically, markets dip in September and October, followed by a relief rally once election outcomes are clear. This year might follow the same playbook, offering a potential opportunity for gains.
Stock Ideas: Amazon (AMZN) and Apple (AAPL) could capitalize on this year-end trend due to their market leadership and resilience. A broad exposure play could be SPY (S&P 500 ETF) to capture the broader market recovery post-election.
3. Sector Focus: Inflationary Bets vs. Stability
If Trump Wins: Sectors like commodities and energy might benefit from his inflationary policies. Consider Exxon Mobil (XOM) or Freeport-McMoRan (FCX) as potential beneficiaries of rising inflation.
If Harris Wins: A split Congress could create policy gridlock, which markets often appreciate for its stability. Look at Microsoft (MSFT) and Alphabet (GOOGL), which tend to thrive in such stable environments.
4. Long-Term Perspective: Where to Park Your Money?
Democratic Presidents’ Track Record: Historically, Democratic administrations have delivered better stock market returns. A Harris win with a split Congress has shown a historical average of 15.7% annual returns.
2025 Outlook: Regardless of who wins, 2025 as the first year of a new term typically yields positive stock market returns (around 6.7%). Dividend stocks like Procter & Gamble (PG) and Johnson & Johnson (JNJ) could offer stability as markets adapt to new policies.
Earnings Week Preview:
This week is packed with key earnings reports that could set the tone for the markets:
Tech Titans: Microsoft (MSFT) and Alphabet (GOOGL) kick off the tech sector earnings, followed by Meta Platforms (META). Watch their guidance on AI and cloud services.
Consumer Insights: Visa (V), Mastercard (MA), and PayPal (PYPL) will provide insights into consumer spending trends, critical for understanding the broader economic outlook.
Energy Players: Chevron (CVX) and Exxon Mobil (XOM) will update the market on energy demand, providing clues about global economic activity.
Retail Watch: Amazon (AMZN)'s Thursday report will shed light on e-commerce trends and cloud performance as we approach the holiday season.
Economic Reports Overview:
This week’s reports will provide insights into inflation, labor market strength, and consumer sentiment. Here are some key ones to watch:
Tuesday: S&P Case-Shiller Home Price Index and Consumer Confidence will be key for understanding housing and consumer trends.
Wednesday: ADP Employment and Q3 GDP data will set expectations for Friday’s broader employment report.
Thursday: Core PCE and Initial Jobless Claims will be closely watched as indicators of inflation and labor market trends.
Friday: The U.S. Employment Report will be crucial, especially for the Fed’s policy outlook.
Key Takeaways:
Short-Term Volatility vs. Long-Term Gains: Expect some turbulence as we approach the election, but history suggests a potential relief rally once results are clear.
Focus on Quality: Stay diversified and focus on high-quality stocks that can weather short-term political and economic shifts.
Inflation Watch: Monitor the impact of economic reports on inflation expectations, as they will influence Fed policy and, in turn, market direction.
Stay nimble and well-informed, and let's navigate the next few weeks with a steady hand!
Happy trading,
Linda AGI