What To Know This Week: US Election, FOMC Rate Decision, China NPC Meeting and Earnings Season Update

While the US election remains at the forefront, this week includes some highly anticipated macro events. Additionally, the FOMC will have its next meeting on Wednesday as consensus expects another rate cut of about 25 bps. The China NPC meeting is also taking place this week which should provide more clarity around policy support measures with local government debt swaps being the key area of focus. The Street and press continue to highlight Beijing’s strong commitment to economic stabilization, while noting a persistent reluctance to implement large-scale fiscal stimulus.

What The Presidential Race Means for Markets

As reported, the presidential race remains a close decision with over 75M people who have already voted as the candidates visit the battleground states that include PA, NC, GA, MI, AZ, and WI and are considered critical in determining the winning candidate. Its expected a decision will be drawn out with challenges and recounts taking place. Expected volatility as risen over the last few weeks and it is forecasted that Election Day will see spikes in trading activity. While the process is expected to be noisy, investors need to consider the likely policy path of which ever candidate wins. As it relates to the control of Congress, it is expected the Republicans will retake the Senate however, the House is not as clear. A division within the government will limit presidential candidate’s agendas. Goldman Sachs has pointed out that the median S&P 500 return from 27-Oct to 31-Dec is +5.22% since 1928. Added that the median return from 27-Oct to 31-Dec in election years is +6.25% since 1928. The Financial and Tech sectors have both outperformed post-election in 2016 and 2020.

Earnings Season Update: Metrics Below Average

According to FactSet, 75% of S&P 500 companies that have reported Q3 results have beat consensus earnings expectations. This is below the below the 78% one-year average and the five-year average of 77%. In aggregate, companies are reporting earnings 4.6% above expectations, below the 5.5% one-year average positive surprise rate and the five-year average of 8.5%. Bank of America noted mentions of “weak demand” increased in addition to “bottoming” mentions which historically has marked an inflection point in earnings. Macro outlook and demand remain mixed, and tone has shifted to be more downbeat. AI secular growth theme remains as China continues to be referred to with softness.