US Weekly Report: US elections, Fed meeting ahead

Busy week of US elections, Fed meeting ahead

The US 2024 presidential election is shaping up to be a closely contested race, with Kamala Harris and Donald Trump still vying for a sizeable lead in the national polls. As usual, it will boil down to the key battleground states to determine who sits on the US president seat, and Pennsylvania with the most electoral votes (+19) among the battleground states will clearly be the focus for both parties (and markets).

You may read more on their potential paths to victory here: https://www.ig.com/sg/news-and-trade-ideas/us-election-2024--paths-to-victory-for-kamala-harris-and-donald--241105

For now, it can be hard to pinpoint an immediate direction for the equities market in the near term, with either scenario bringing both a bull and bear case. However, we believe that any weakness may offer opportunities for dip-buying, as economic fundamentals may eventually take over while policy uncertainty clears, alongside the general positive seasonality into year-end and post-elections.

What to expect for the upcoming Fed meeting?

Apart from the US elections, market participants also have the November Federal Reserve (Fed) meeting to digest this week. Expectations are fully priced for a 25 basis point (bp) cut, so the rate outcome may not trigger much volatility across markets. In the absence of fresh economic projections at this meeting, what matters more may be Fed Chair Jerome Powell’s guidance around the rate outlook, given that the recent run in upside US economic surprises may seem to call for more patience in the Fed’s easing process.

We believe the likely scenario could be the Fed cutting rates by 25 bp this week and sticking to their earlier guidance for another 25 bp cut in December in a largely data-dependent stance. Thus far, Personal Consumption Expenditures (PCE) inflation remains below the Fed’s year-end economic forecast, which suggests that policymakers may perceive inflation risks to be under control and within their tolerance levels. These may be reiterated by the Fed, alongside its usual script for a US soft landing. Markets are pricing a 82% probability for a 25 bp rate cut in December.

S&P 500: Rolling over from its record high as US election looms

For the S&P 500, a decline in its daily moving average convergence/divergence (MACD) over the past week points to some abating upside momentum, as US election uncertainties called for some caution towards risk-taking for now. Given that the broader upward trend remains intact, that leaves one to watch for any formation of a higher low ahead. Immediate support may be at the 5,674 level, while a stronger support confluence may be at the 5,435 level, where a lower channel trendline stands alongside the lower edge of its daily Ichimoku Cloud.

Levels:

R2: 6,000
R1: 5,873

S1: 5,674
S2: 5,435

Source: IG charts

Sector performance

A busy week of US election and the Federal Open Market Committee (FOMC) meeting ahead of us offers strong grounds for market participants to take some risks off the table, with sector performance over the past week revealing broad-based profit-taking in equities. The S&P 500 is down close to 2% for the week, with almost all of the Magnificent Seven stocks (except Amazon) closing in the red. Tesla is down 7.5%, Apple is down 4.8% and Microsoft is down 4.3%. A more lukewarm revenue guidance in the megacap tech companies compared to expectations offered some reasons to de-risk as well, with their rich valuation being brought into question. The energy sector is the only sector in the green (+0.4%), but the gains are insufficient to lift the sector out of its status as the top underperformer year-to-date.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 29th October – 4th November 2024.

Source: Refinitiv
*Note: The data is from 29th October – 4th November 2024.

Source: Refinitiv
*Note: The data is from 29th October – 4th November 2024.