What Happened Last Week
- Yields Rose: Concerns over higher spending in the U.S. post-election caused yields to spike, dampening equity sentiment.
- Mega-cap Earnings: The NASDAQ 100 led equity losses as earnings releases generally disappointed investors’ lofty expectations.
- Global Equities Decline: Election-related risk aversion also weighed on global equities.
What We’re Watching This Week
- U.S. Election: Polls close on Tuesday, but there may be a delay in announcing the outcome; this will not shock investors, who have been factoring in a delay for some time.
- Federal Reserve Meeting: We expect a 25bp interest rate cut and little else from the Fed with so much other news going on in Washington this week.
- China: Concrete stimulus policy details are likely out of the week-long meeting of their key lawmaking body, the Standing Committee of the National People’s Congress.
Investment Management Team’s Views
- Higher interest rates, nervousness around the election, and underperformance from some mega-caps pushed the S&P 500 down for the second consecutive week. Of the mega-caps that reported last week, most failed to meet the elevated expectations baked into their prices; after all, the NASDAQ 100 is up 86% since the end of 2022. The bulk of earnings season is now behind us, and while the results were healthy and guidance strong, they were not enough to push equities higher, given the other things investors have on their plate.
- Economic data and interest rates sent conflicting signals last week as yields rose despite a shockingly weak non-farm payrolls report. Hurricane- and strike-related factors are likely to blame for the jobs miss. We are not changing our constructive view of the consumer and the underlying economic momentum in the U.S. Still, we acknowledge that the data will likely be volatile in the near term. The push above 4.30% in the 10-year yield and general concerns about the size of the debt added to poor investor sentiment last week. Our view is that the perennial concern over fiscal deficits will only stay market-relevant in the event of a unified government – red or blue – which means that a divided government is likely the best outcome for equities.
- The U.S. election and global central bank decisions dominate another jam-packed week for market participants. Amid the election, investors factored in a few days of delays in the final result, so don’t expect outsized market volatility if we don’t know the winner on Wednesday morning. However, the uncertainty of waiting beyond a week or so will dent market confidence and could lead to “sell-first, ask questions later” investor behavior. We expect a relatively straightforward 25 basis point rate cut with minimal policy guidance from the Fed meeting. Investors will also keenly monitor stimulus-related announcements from the week-long meeting of China’s key policy implementation body, the National People’s Congress.
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