U.S. Stocks Soar: Economy Shows Strength Amid Pre-Election Frenzy
U.S. stock markets showed a strong upward trend on Tuesday, propelled by a widespread rally following data indicating steady economic health. Investors, however, are preparing for possible fluctuations this week as the heated presidential election in the U.S. gets underway and results remain uncertain.
Service Sector Exceeds Expectations
According to a report from the Institute for Supply Management, the U.S. services sector PMI rose to 56.0 in October, marking its highest level since August 2022. This was an increase from 54.9 the previous month and exceeded economists' forecast of 53.8. These figures have bolstered investor confidence that the economy can withstand challenges despite the uncertainty.
Rising Odds in the Presidential Race
The intense race between former president Donald Trump and Democrat Kamala Harris remains highly contested. Polls indicate the outcome is still too close to predict with certainty. Betting markets, however, saw Trump's odds improve slightly, a trend many investors see as a possible pre-election indicator.
Congress in Focus for Investors
"The market is carefully evaluating possible election scenarios," commented Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. He emphasized that both stock and bond markets are closely watching the outcome of congressional races. The prevailing forecast leans toward a divided government, but with such a close election, the outcome could go any way.
With such unpredictable prospects, the coming week promises to be one of the most volatile for the market this year.
U.S. Indices Hit New Highs: Markets on the Rise, but Volatility Ahead
Indices on Wall Street continued their upward trend, reaching new highs on Tuesday. The S&P 500 gained 70.42 points (+1.23%), closing at 5,783.11. Tech-heavy Nasdaq Composite climbed by 259.19 points (+1.43%) to 18,439.17, while the Dow Jones ended the session with an increase of 431.42 points (+1.04%), reaching 42,227.74.
Increased Volatility in Debt and Currency Markets
Amid the positive momentum in stock indices, bond and currency markets saw notable fluctuations. The yield on 10-year Treasury bonds spiked by 10 basis points, reaching 4.366%, though it later eased slightly due to a successful auction, ending the day with a minor pullback.
Soft Landing for the Economy: Investor Expectations Remain Optimistic
On Tuesday, stock markets avoided previous volatility thanks to optimistic expectations of a "soft landing" for the economy. Corporate earnings, low-interest rates, and a stable labor market have bolstered confidence, helping markets hold steady.
Trade Deficit Peaks: Reflecting Increased Demand
Tuesday's data revealed that the trade deficit hit a 2.5-year high in September. Rising domestic demand boosted imports, while concerns about higher tariffs in a potential Trump administration led businesses to secure imports in advance.
CBOE Volatility Index: Slightly Above Average
While the CBOE Volatility Index, known as Wall Street's "fear gauge," retreated from its two-month peak of 23.42, it still remained above its long-term average of 19.46.
Leading Sectors Drive Market Upward: Industrials and Consumer Goods in Focus
The market saw a notable uptick, supported by the steady performance of industrial companies and consumer discretionary goods, which became key drivers in the S&P 500 index's rise. These sectors show strong upward movement, strengthening investors' positions amid political and economic uncertainties.
Political Forecasts: Potential Congressional Split
Investors are closely watching the Congressional elections, which will determine the political landscape for the coming years. Analysts anticipate a divided government, which could significantly restrict the president's ability to implement major reforms, impacting economic policy and the investment climate in the U.S.
Volatility in Stocks Tied to Trump's Campaign
Some stocks, perceived as indicators of support for former president Donald Trump, experienced considerable fluctuations. Shares of Trump Media & Technology Group rose by 18.64% before falling by 8.42%, with trading suspended multiple times due to sharp swings. These movements reflect market sentiment and a strong reaction to news about Trump's potential return.
Cryptocurrencies on the Rise: Bitcoin and Blockchain Stocks See Gains
Cryptocurrency assets also saw gains, with Bitcoin rising approximately 4%. Trump's stance as a supporter of the crypto industry has likely fueled interest in digital assets, creating momentum for related stocks.
Data Analysis Firms Surge: Palantir Strengthens its Position
Shares of Palantir, the data analytics giant, reached record levels after the company raised its annual revenue forecast for the third time. This sparked strong interest from investors, reflecting confidence in Palantir's stable growth amid rising demand for data services.
Fed's Rate Decision: Markets Await the Next Move
The Federal Reserve is set to release its policy statement on Thursday. While a 25 basis point rate cut is widely expected, the future path of monetary easing remains uncertain due to the robust U.S. economy, which is influencing investor sentiment.
Asia Opens on a Positive Note: Futures and Dollar Climb
On Wednesday morning, U.S. stock futures and the dollar gained in Asian trading as investors speculated on Republican Donald Trump's potential victory in the U.S. election. Although the race remains too close to officially call, markets view the possibility of his win as a potential growth driver.
Trump Gains Ground in Key Swing States
In the political arena, Trump strengthened his position by winning the swing states of North Carolina and Georgia. These victories bring him closer to a dramatic return to the political stage, four years after leaving the White House.
S&P 500 and Nasdaq Futures Surge: Markets Eye Tax Cuts and Regulatory Easing
Futures for the S&P 500 and Nasdaq gained over 1% on Tuesday as Wall Street looked forward to potential tax cuts and relaxed corporate regulations, part of a possible Trump-led economic agenda. This optimism has driven futures upward, reflecting anticipation of favorable conditions for business.
Europe Takes a Cautious Stance Amid Trade War Concerns
European markets, however, reacted more cautiously. Trump's proposed tariff policy has raised concerns about a potential global trade war, which could impact EU exports. EUROSTOXX 50 futures fell by 0.61%, DAX futures dropped by 0.55%, while FTSE futures remained stable, reflecting European investors' cautious outlook.
Treasury Yields at New Highs: Markets Price in Trump's Potential Victory
Treasury yields hit four-month highs, spurred by a series of betting site forecasts and The New York Times' swingometer, which indicated a 93% probability of a Trump win. This expectation drove investor interest in U.S. Treasuries.
Trump's Policies and Their Impact on Inflation and Bond Yields
Analysts suggest that Trump's plans to restrict immigration, reduce taxes, and impose significant tariffs could increase inflationary pressure and drive bond yields higher, contrasting with Harris's more centrist policies. These proposed measures also strengthen the dollar, potentially limiting future cuts to U.S. interest rates.
Fed's Rate Cut Still Expected, But Future Easing Unclear
Despite confidence in a 25 basis point rate cut from the Federal Reserve on Thursday, futures for the next year slipped slightly, with December down by 9 points. The uncertain economic outlook and potential inflationary pressures make the future path for rate cuts less predictable, keeping investors on edge.
Markets Respond to Initial Results: Dollar Gains, Bitcoin Climbs
With the arrival of preliminary data, though lacking major surprises, markets are seeing notable shifts. Treasury yields are rising, the dollar is strengthening, and Bitcoin is climbing, a reaction often seen with Trump's influence, noted Brian Jacobsen, chief economist at Annex Wealth Management.
Treasury Yields Reach New Highs
The yield on 10-year Treasury bonds climbed to a four-month peak, reaching 4.471% and surpassing the previous high of 4.388%. Short-term two-year bonds also rose, reaching 4.312% from 4.189% at New York's close.
Spending and the Fiscal Printer: Candidates' Economic Strategies
Arnim Holzer, a global macro strategist at Easterly EAB Risk Solutions, observed that neither candidate displays strong fiscal conservatism. "Both are willing to leverage fiscal spending for economic stimulus," he remarked. However, the key question remains whether the candidates will secure a full mandate. "Without a decisive victory, fiscal measures will be limited, which is positive for bondholders," he added.
Contrasting Asia: MSCI Declines as Nikkei Rises
Asian markets showed mixed trends, with the broader MSCI Asia-Pacific index declining by 0.68%, while Japan's Nikkei rose by 2.4%, driven by a weakening yen that buoyed investor optimism in Japan.
Sharp Dollar Gains: Currency Markets See New Records
On Tuesday, the U.S. dollar surged by 1.6%, reaching an index level of 105.19—its largest daily gain since early 2023. The euro, which had previously strengthened to a high of $1.0937, fell sharply by 1.57%, settling at $1.0757.
Dollar Strengthens Against the Yen and Yuan
The dollar rose by 1.37% against the Japanese yen, reaching 153.68 and distancing itself further from the recent low of 151.34. Against the offshore yuan, the dollar gained 1.15%, hitting 7.1801, which prompted reports that Chinese banks were intervening by selling dollars to stabilize their currency. China remains particularly vulnerable to tariff risks, with the yuan displaying heightened volatility against the dollar.
Bitcoin's Record Surge: Cryptocurrency Markets Rejuvenated
Bitcoin surged by 8.54%, reaching a new all-time high of $75,060. Trump's perceived support for the crypto sector is considered a contributing factor in this digital asset rally, sparking significant upward momentum.
Chinese Markets See Gains Amid Policy Anticipation
Chinese stock markets moved up to nearly one-month highs as investors awaited an upcoming meeting of senior policymakers in Beijing. This meeting is expected to focus on refinancing and increased local government spending, fueling investor optimism. China's blue-chip index, CSI300, saw a 0.2% increase, reflecting cautious optimism around potential economic stimulus.
