The U.S. stock market may move slightly higher at the opening bell this morning, as traders prepare for a pivotal week. Over the next few days, Americans will head to the polls to elect the country’s next President, the Federal Reserve will issue another interest-rate decision, and numerous corporations will deliver quarterly profit reports. Investors may also be keeping an eye on the situation in the Middle East, as increased military tensions between Israel and Iran could potentially drive up crude oil prices. As we were publishing this report, the S&P 500 Index futures were ahead about six points (0.10%) in pre-market trading.
In economic news, the main event this week will take place on Thursday, when the FOMC (Federal Open Market Committee) wraps up its two-day policy meeting. At this juncture, most investors expect that the central bank will lower interest rates by 25 basis points, which seems appropriate. It should be noted that the economy has been holding up reasonably well lately, and inflation appears to be hovering around the Fed’s 2% target range. As a result, the Fed may not be in a major rush to adopt a more-accommodative policy, just yet. This shift in outlook may explain why the yield on the 10-year Treasury bond has moved up from roughly 3.6% in September to 4.3% where its stands today.
Meanwhile, the third-quarter earnings season continues to unfold. According to Factset, about 70% of the companies in the S&P 500 Index have already delivered their results. The numbers have generally been constructive, showing profits rising about 5% for the quarter, on a year- over-year basis. This week we will hear from a number of widely-held companies, including Qualcomm (QCOM), ARM Holdings (ARM), and Moderna (MRNA). It is crucial that corporations meet expectations and provide upbeat guidance, given that equities are trading at somewhat elevated multiples.
From a technical viewpoint, the stock market pulled back slightly during the second half of October. This may have been due to concerns about the outcome of the Presidential election. Hopefully, the results will not be contested, and a protracted legal fight can be avoided. Perhaps, once the election has been decided, investor sentiment will improve. However, the broader market has already advanced about 20% this year, so it is not certain that a major year-end rally will materialize. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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