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U.S. Markets Gear Up For Another Week of Potentially Market-Moving Events

John Galt

Updated: November 8, 2022

stock market week
Editor’s Note:

EDITOR'S NOTE: The broader market rallied today on optimism that tomorrow’s midterm election may present the solution to the economy’s problems. Optimism is always refreshing, but this seems a bit myopic, don’t you think? Too many analysts have noted that the negative factors pressuring the economy are generally nonpartisan. This tells us that people watch political news to get a clue about the economic outlook. Apparently, they also take their investment clues from political slogans rather than hard data. No matter who gets elected, no politician or party has a magic wand. Smart money knows this, and that’s why the majority of investors tend to fare poorly. Using the wrong map will always set you in the wrong direction.

U.S. stock market pushed forward Monday as investors geared up for another week of potentially market-moving events: the Nov. 8 midterm elections and October consumer price data.

The S&P 500 (^GSPC) rallied 1%, while the Dow Jones Industrial Average (^DJI) jumped more than 400 points, or roughly 1.3%. The technology-heavy Nasdaq Composite (^IXIC) gained about 0.9% after the index posted its worst weekly decline since January.

A batch of downbeat corporate news has renewed focus on the wreck across technology stocks after disappointing earnings last week dragged the sector's heaviest hitters — Apple (AAPL), (AMZN), and Alphabet (GOOGL) — to losses of more than 10% each.

Apple (AAPL) reversed a loss of more than 1% to close higher after the company said in a statement Sunday it expects fewer shipments of its newest premium iPhones than previously anticipated, citing COVID lockdowns in China that dented operations at its biggest smartphone maker Foxconn's factory.

Also among tech giants, Facebook parent Meta (META), which is now the worst performer in the S&P 500 index this year, is expected to begin large-scale layoffs this week, according to a report from the Wall Street Journal on Sunday. Shares rose 6.5%.

Elsewhere in markets, Carvana (CVNA) shares sank nearly 16% after an analyst at Morgan Stanley last week said the car retailer could be worth as little as $1.

Election Day may keep investors on edge as dozens of key races determine which political party has control over the congressional agenda. Wall Street has historically preferred a split Congress or White House, with gridlock making it difficult to execute any potentially unfavorable legislation.

“Going back to 1929 and excluding the Great Depression, some of the best annual returns for the S&P 500 have been seen when the sitting President does not have full control over both sides of Congress,” Verdence Capital Advisors CIO Megan Horneman and CEO Leo Kelly said in emailed commentary. “This may be because markets do not expect major changes to law with a split Congress.”

While political campaigns have placed fiscal leadership into the spotlight, some strategists argue that midterm outcomes rarely influence financial markets outside of short-term volatility.

“The markets are influenced more by expected financial conditions and economic catalysts than by midterm elections,” Morningstar Chief U.S. Market Strategists Dave Sekera said in a recent note. “Historically, some analysis has shown that equity markets have tended to underperform in the runup to midterms and then outperform thereafter.”

October’s Consumer Price Index (CPI) out Thursday, however, is sure to sway equity markets. Another hot inflation reading may solidify expectations that the Federal Reserve will raise its key interest rate more than initially forecast.

Economists surveyed by Bloomberg see headline CPI at an annual 7.9% for the month, a moderation from September’s year-over-year increase of 8.2%. Core CPI, which strips out the volatile food and energy components of the measure, is projected to come in at 6.5%, little changed from 6.6% last month.

“Headline inflation has likely peaked, but core inflation hit its post-pandemic high just last month,” Baird Investment Strategy Analyst Ross Mayfield said in an emailed note. “While the Fed has hinted that they see reasons to slow their pace, the rate of inflation – even if it has peaked – remains far too high for comfort.”

“Until the Fed signals the 'pivot' is near, things could remain challenging,” he added.

Originally published on Yahoo Finance.

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