Wall Street: US stock market braces for election and Fed meeting impact

Strong start for US stocks amid mixed jobs report

United States (US) stock markets started November on strong footing, lifted by positive earnings from Amazon and Intel, even though the latest jobs report painted a mixed picture. For the week, the Nasdaq 100 slipped 1.57%, the S&P 500 dropped 1.37%, and the Dow Jones fell 62 points or 0.15%.

October’s non-farm payrolls showed the US economy added just 12,000 jobs, well below the 113,000 expected. Some of this weakness was due to hurricane disruptions, with strikes contributing to a 37,000 decline. Additionally, the weak headline figures included downward revisions of 112,000 jobs over the past two months. Providing some balance, the household survey, which was likely less impacted by the hurricane, showed a steady unemployment rate of 4.1%.

US election outlook and vote counting

As the US election nears, betting and prediction markets are slightly favouring a Trump victory. However, the final round of polls over the weekend showed the odds of a Republican sweep dropping to around 36% this morning, down from 48% last week. The probability of a Harris win with a split Congress sits at approximately 27%.

Votes start being counted by Wednesday mid-morning Sydney time. Without a centralised national ballot-counting body, media organisations like the Associated Press (AP), Fox News, and a consortium including American Broadcasting Company (ABC), Columbia Broadcasting System (CBS), Cable News Network (CNN), and National Broadcasting Company (NBC) will tally votes as they come in, making projections state by state.

The timing of the winner’s announcement will depend on how quickly votes are counted. For instance, Barack Obama’s 2008 victory was confirmed within hours, while in 2016, Donald Trump was declared the winner on election night despite a close race. Conversely, in 2020, it took four days to declare Joe Biden the winner, due to the high volume of Covid-19 driven mail-in ballots. Ultimately, results could be clear within hours or extend for several days.

What is expected from this week's FOMC meeting?

Date: Thursday, 8 November at 6.00am AEDT

At its September meeting, the Federal Open Market Committee (FOMC) cut interest rates by 50 basis points (bp) to a range of 4.75% to 5.0%, marking the Federal Reserve's (Fed's) first rate reduction in over four years, aimed at supporting the US labour market.

In the following press conference, Fed Chair Powell explained, 'This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.'

Since the September rate cut, inflation data has been subdued, while economic activity and the labour market have been stronger than anticipated. This steady flow of stronger-than-expected data has shifted traders’ expectations, with fewer now predicting aggressive Fed rate cuts by year-end.

The prevailing view is for another 25 bp cut at this week’s FOMC meeting, followed by a similar cut in December as the Fed gradually eases towards less restrictive monetary policy.

Fed funds rate chart

Nasdaq 100 technical analysis

After failing to break above its mid-July 20,690 record high early last week, the Nasdaq 100 first showed weakness on Thursday when it closed below horizontal and uptrend support at 20,000.

If the Nasdaq 100 breaks critical support at 19,600 - 19,500, it would indicate a deeper decline is underway towards initial support at 18,833, which aligns with the 200-day moving average. Below that, we find the September low at 18,400, and further down, uptrend support at 18,100, stemming from the December 2022 low of 10,671.

As long as the Nasdaq 100 remains above the 19,600 - 19,500 support area, another test of the 20,690-record high remains possible.

Nasdaq 100 cash daily chart

S&P 500 technical analysis

Last week, the S&P 500 ended October on a softer note, registering its first losing month since April. In the process, it broke below uptrend support at 5800, originating from the August low of 5119.

A sustained break of medium-term horizontal support at 5670 - 5650, would indicate that a deeper decline towards the September 5402 low is underway. Below that, support at 5359 comes from the 200-day moving average, before stepping down to the August low of 5119.

As long as the S&P 500 stays above the horizontal support band at 5760 - 5650, a retest and potential break of the 5878-record high are possible, before moving towards 6000.

• _{Source: TradingView. The figures stated are as of 4 November 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}