Welcome to Election Week—it’s finally here. Perhaps in part a pause ahead of Tuesday’s election, but last week the overall stock and bond markets finished lower. The S&P closed out October with a loss for the second month in a row. However, since August 7th, the S&P is still up about 12% and is heading into the election with nearly a 20% return, marking its best performance in an election year since 1932. Meanwhile, the bond market, as represented by the 10-year Treasury, has seen interest rates rise for seven consecutive weeks. Commodity prices also declined last week, though notably, both gold and Bitcoin were up, each reaching new all-time highs.
Alongside a record barrage of election ads, last week was packed with earnings and economic data. On the earnings front, it was a good week, especially for some of the “Magnificent 7” stocks, including Amazon and Alphabet (Google). Year-over-year growth for the S&P 500 is now over 5%, and if this holds, it will be the fifth consecutive quarter of positive earnings growth.
As for economic data, the week was mildly disappointing but not enough to shift any major market narratives. Inflation, measured by the core PCE index, came in closer to 3% than the Fed’s target of 2%, but this was largely expected. The manufacturing sector continued to show weakness through the ISM report. Employment data also came in on the weaker side but was largely discounted by investors due to recent hurricanes, strikes, and election uncertainty.
This week, of course, is all about the election. The results (hopefully) will likely shape market narratives in the weeks and months to come. This week also brings the Federal Reserve’s next meeting, where they are widely expected to cut short-term interest rates by another twenty-five basis points (1/4 of 1%). And although the earnings season is now over 70% complete, we will still see a few key reports this week, though they may be overshadowed by election news.
One more report from last week that could have market implications moving forward: the Conference Board reported a jump in consumer confidence to a nine-month high. This boost in sentiment was largely driven by increased optimism about the U.S. stock market’s future. Over 50% of consumers surveyed expect stock prices to rise over the next year, the highest such reading since records began in 1987. This optimism is reflected in portfolios as U.S. households currently hold 48% of their assets in stocks—the highest level since the Dot-Com bubble peak. While this year’s gains have rewarded investors, a contrarian might note that when sentiment and stock holdings reach such highs, history suggests below-average returns often follow.
Bottom line, the best course is to...
Stay invested. Stay diversified. Stay disciplined.
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