Election, Earnings and the Fed Decision Are Likely to Produce Chaotic Market Action
Volatility and uncertainty will be at extreme levels, which will produce good opportunities for active investors.
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A highly emotional election with a very uncertain outcome will be the highlight of the market this week, but there is also the Fed interest-rate decision on Thursday and hundreds of earnings reports.
There was a sharp pullback last week when the Magnificent Seven MAGS names largely failed to excite the market, and there has also been a steady increase in interest rates since the half-point cut about two months ago. The market will continue to struggle with those issues this week.
That's a tremendous amount of news flow for the market to digest, and there are some very substantial risks. The biggest risk is an uncertain outcome of the election. If no winner is announced quickly and there are claims of election cheating, the uncertainty is very likely to have a negative market impact.
The best outcome for the market will probably be a clear winner, but also with a split outcome with the other party controlling Congress. Gridlock would help prevent the sort of spending that single-party control would produce. There appears to be some market preference for Trump, especially for Bitcoin, but both candidates have policies that the market does not fully embrace and could produce some sell-the-news action.
After the election Tuesday, the Fed will issue its interest-rate decision on Thursday afternoon. There has been talk recently about how the half-point cut at the last meeting may have been a mistake. Bonds have been in a steady decline as interest rates rise to levels that existed before the Fed’s cut. There are a few signs of economic slowing, but there are growing concerns about inflation, which may accelerate after the election.
Another issue is the response to earnings. The Magnificent Seven names are no longer the leaders they once were, and AI is no longer a catalyst for automatic buying. There are concerns about valuation, and momentum in the Nasdaq 100 QQQ has been poor for a while. The technology-heavy index has not been able to overcome the highs it hit back in July, although there have been some big moves in both directions.
Many investors are hopeful that the start of positive seasonality will bolster the market, but the election and the Fed are issues that remain a factor. We will need to keep a close watch on price action.
This is also a big week for small-cap earnings, and I will be watching dozens of names, so I expect to be very busy. The election and the Fed will add an extra element of volatility and uncertainty. Stay extremely vigilant and be ready to move quickly.
At the time of publication, Rev Shark had no positions in any securities mentioned.
