MW The election result investors fear historically is the best for the stock market
By Steve Goldstein
It turns out unified government actually is the best for the stock market
It's the event we've all been waiting for: the latest ISM service sector report is due for release.
Oh there's also a U.S. election, which is generating some attention. Polling guru Nate Silver overnight revealed that he conducted 80,000 simulations of the election, and Vice President Kamala Harris won in 50.015% of them. There were even a few 269-269 splits in the simulation. It's as close to a coin toss as one can imagine.
To the extent that investors have a consensus opinion about this race, the one result they do not want is a sweep, particularly a Democratic one but also not a Republican win of the presidency, the House and the Senate.
"You have a populist on one side, and a progressive populist on the other," said David Tepper, the founder of Appaloosa Management, in a CNBC interview last month. "Do I want all Democrats? No. Do I want all Republicans? No!"
Historically, however, that sentiment is off base.
Evercore strategists led by Julian Emanuel crunched the numbers and it turns out unified government actually is the best for the stock market. Since 1928, annualized returns for unified Republican control are slightly over 9%, and are 9% for clean-sweep Democrats, with both beating divided government by at least 2 percentage points.
Emanuel says the elections don't end bull markets - recessions do. And right now, neither jobless claims, credit spreads nor the firm's surveys of companies point to an imminent downturn.
Valuations, at 24 times trailing twelve month earnings per share, are elevated but below the peak of 28 times, he adds. "Expensive markets can persist upwards of 18 months with further gains," he says.
IPO and merger activity also is not frenzied, and investor sentiment is not extended, he said. Finally, the Federal Reserve is still supportive. "A break in the relationship between stocks and rate cuts priced through Dec 2025 would be of concern," he says.
He says there's a potential for a post-election melt-up, in a quickly decided divided government, that would take the S&P 500 SPX to 6,500, or a sell-off that would send the VIX VIX volatility gauge to 38 in a messy, contested race like 2000.
The market
A slight pro-Trump feel in markets: U.S. stock index futures (ES00) (NQ00) inched higher early Tuesday, after a down day on Monday, as the dollar DXY edged lower and bitcoin (BTCUSD) climbed.
Key asset performance Last 5d 1m YTD 1y S&P 500 5712.69 -1.90% 0.29% 19.77% 30.85% Nasdaq Composite 18,179.98 -2.09% 1.43% 21.11% 34.48% 10-year Treasury 4.306 4.70 28.90 42.51 -26.15 Gold 2746.2 -0.31% 3.17% 32.55% 38.37% Oil 71.91 5.73% -6.96% 0.81% -11.13% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
The initial exit polls will be released at 5 p.m. Eastern, and the first polls close at 7 p.m.
The U.S. economics calendar includes the trade balance, ISM services and a $42 billion auction of 10-year notes.
Palantir Technologies $(PLTR)$ late Monday reported stronger-than-forecast 30% revenue growth as the software company targeted current quarter sales growth above estimates.
Boeing $(BA)$ workers voted to end a 53-day strike, accepting a pay deal that will include raises of 38% over four years.
Dollar Tree $(DLTR)$ CEO Rick Dreiling is stepping down as the retailer reiterated its third-quarter outlook.
Lattice Semiconductor $(LSCC)$- one of a handful of chip companies that reported after the close on Monday - reported a decline in revenue and said it would cut 14% of its workforce.
Super Micro Computer $(SMCI)$, which last week reported that its auditor resigned, reports results after the closing bell.
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The chart
22V Research compiled the time the Associated Press called the presidential election winner in the last six elections - so it could be quick or, like 2000, stretch for weeks. And of course there is a slim possibility that neither candidate will get a majority, throwing the election to the each House state (and the vice president pick to the Senate), which last happened in 1824.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name DJT Trump Media & Technology NVDA Nvidia TSLA Tesla PLTR Palantir Technologies GME GameStop NIO Nio TSM Taiwan Semiconductor Manufacturing SMCI Super Micro Computer AAPL Apple AMD Advanced Micro Devices
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-Steve Goldstein
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 05, 2024 06:22 ET (11:22 GMT)
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