US Market Insights (21- 25 Oct): Potential Trump Sweep Drives Stocks Higher

Tiger_James Ooi
10-21

 

Major earnings announcements this week include:

 

Important economic events this week include:

  • 21-26 Oct: IMF Annual Meetings

  • 22-24 Oct: BRICS Summit

  • Thursday: Unemployment claims, Manufacturing and Services PMI

 Things You Should Know Before Starting Your Week

1) $Taiwan Semiconductor Manufacturing(TSM)$ ’s upbeat earnings reinforced a strong AI outlook, but the Semiconductor Index still closed 2% lower last week.

  • TSMC jumped nearly 10% on its positive earnings outlook, but the iShares Semiconductor ETF (SOXX) still closed 2.6% lower last week.

  • Investors remain cautious about the AI chip outlook due to ASML's disappointing earnings.

  • Chip investors should expect more volatility this week as semiconductor stocks like Texas Instruments and Lam Research are scheduled to release earnings.

2) Trump Trade Could Be Back This Week

  • Investors increasingly believe Trump will win the U.S. presidential election, leading to a potential revival of interest in the "Trump Trade."

  • U.S. betting site PredictIt now favors Trump to win the presidential election, with Trump shares priced at 56 cents compared to Harris shares at 49 cents.

  • Several Trump Trade companies are set to announce earnings this week, including General Motors, Lockheed Martin, General Electric, Raytheon Technologies, L3Harris Technologies, General Dynamics, and Baker Hughes.

 

3) October Seasonality Suggests U.S. Stocks Could Bottom This Week

  • Based on historical performance since 1928, the $.SPX(.SPX)$ typically encounters a sell-off between October 21 and 27, followed by a rally on October 28.

  • However, Goldman Sachs’ tactical specialist Scott Rubner has cancelled his October bearish call, suggesting that institutional investors are being forced to invest now due to "FOMU" (Fear of Materially Underperforming benchmark equity indices).

Source: Bloomberg

4) Republican Sweep Could Be Good for Stocks

  • Investors are now predicting a Trump win and a possible Republican sweep, driving early optimism in the markets.

  • The odds of a Republican sweep have increased from 20% on October 8 to 22% on October 17, according to betting site Oddschecker. Another U.S. betting site, PredictIt, also sees a higher chance of a Republican sweep now.

  • In 2016, the Republican sweep of the House, Senate, and presidency prompted the S&P 500 to rise 5.4% between November 8, 2016 (U.S. presidential election day), and the end of the year.

  • Trump’s proposed expansionary fiscal policy is viewed as more stock market-friendly compared to Harris's policies.

Conclusion:

  • The $.SPX(.SPX)$ managed to close at another all-time high last week, marking six consecutive weeks of gains.

  • I was initially skeptical of an October rally due to factors such as the Middle East conflict potentially reigniting inflation, U.S. election uncertainties, high valuations, possible negative earnings surprises, and poor October seasonality.

  • However, U.S. stocks have remained resilient, partly due to the potential for a Republican sweep.

  • The U.S. corporate buyback blackout period broadly ends on October 25, which may further drive stocks higher through the end of 2024.

  • I continue to favor AI beneficiaries, including the "Magnificent Seven" stocks, along with semiconductor stocks like Broadcom $Broadcom(AVGO)$ , ARM $ARM Holdings Ltd(ARM)$ , TSMC $Taiwan Semiconductor Manufacturing(TSM)$ , Oracle $Oracle(ORCL)$ , and AMD $Advanced Micro Devices(AMD)$ .

Take Profit as S&P Hits 5800 or Hold Till 6000?
As the stock market hits record highs more than 40 times this year, there are concerns that history might repeat itself and another financial crisis could occur. ---------------- Will S&P 500 hit 6000 by year-end as institutions predict? Would you take profit and stay cautious ahead or hold till the year-end?
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