Market gets ready to go “Big”

As traders prepare for some of earning season’s highest-profile announcements and the monthly jobs report, stocks are coming off their first down week since early September as bond yields climbed to their highest levels in nearly three months.

The S&P 500 (SPX) dropped to a two-week low last Wednesday before bouncing on Thursday, then ended the week on a wobbly note by surrendering a solid intraday rally on Friday:

The headline: Stocks dip and yields rise before critical market stretch.

The fine print: There may be an election and a Fed decision next week, but this week could play a big role in the stock market’s near-term momentum. Aside from the release of key labor market data, Alphabet (GOOGL), Meta (META), Microsoft (MSFT), Apple (AAPL), and Amazon (AMZN)—five of the “magnificent seven” companies representing nearly a third of the S&P 500’s capitalization—will report earnings this week.

The moves: The 10-year Treasury yield ended a week at or above 4.2% for the first time since July 26. Tesla (TSLA) enjoyed its biggest up day in more than a decade (+22%) after last Wednesday’s earnings beat.

The scorecard: The Nasdaq 100 (NDX) tech index gained ground last week, while the Russell 2000 (RUT) small cap index posted its biggest loss. Morgan Stanley Wealth Management recently questioned the attractiveness of seemingly undervalued small caps:¹

Sector returns: The strongest S&P 500 sectors last week were consumer discretionary (+1%), information technology (+0.2%), and communication services (-0.03%). The weakest sectors were materials (-4%), health care (-3%), and industrials (-2.8%).

Stock movers: Stride (LRN) +39% to $89.71 on Wednesday, PureCycle Technologies (PCT) +30% to $14.30 on Thursday. On the downside, Constellium (CSTM) -28% to $10.73 on Wednesday, Icon (ICLR) -21% to $221.73 on Thursday.

Futures: Big gains on Tuesday and Friday helped December WTI crude oil (CLZ4) end the week more than $3 higher at $71.78. December gold (GCZ4) hit more record highs and closed Friday at $2,754.60, up nearly $25 for the week. Week’s biggest gains: December natural gas (NGZ4) +10.9%, December palladium (PAZ4) +10.7%. Week’s biggest declines: December cocoa (CCZ4) -9.1%, November ether (ETHX4) -7.2%.

Jobs data dominates the economic calendar, along with the Fed's preferred inflation gauge (PCE Price Index):

●Tuesday: S&P Case-Shiller Home Price Index, FHFA House Price Index, Job Openings and Labor Turnover Survey (JOLTS), consumer confidence
●Wednesday: ADP Employment Change, Q3 GDP (first revision), trade balance in goods (advance), Pending Home Sales
●Thursday: Job Cuts, PCE Price Index, personal income and spending, PCE Price Index, Chicago PMI
●Friday: Employment Report, S&P Global Manufacturing PMI, ISM Manufacturing Index, construction spending

It’s not just big tech this week—big pharma, big oil, and big consumer names are also releasing earnings. This just skims the surface:

●Monday: On Semiconductor (ON), Ford (F), F5 (FFIV), Rambus (RMBS), SBA Communications (SBAC), TransMedics (TMDX), Waste Management (WM)
●Tuesday: Archer Daniels Midland (ADM), BP (BP), Incyte (INCY), McDonald's (MCD), Novartis (NVS), Pfizer (PFE), Phillips 66 (PSX), PayPal (PYPL), Chipotle (CMG), First Solar (FSLR), Alphabet (GOOGL), Qorvo (QRVO), Reddit (RDDT), Visa (V)
●Wednesday: AbbVie (ABBV), Caterpillar (CAT), Kraft Heinz (KHC), Eli Lilly (LLY), Verisk Analytics (VRSK), Airbnb (ABNB), Coinbase (COIN), Carvana (CVNA), eBay (EBAY), Meta (META), Microsoft (MSFT), MicroStrategy (MSTR), Starbucks (SBUX), Super Micro Computer (SMCI)
●Thursday: Bristol-Myers Squibb (BMY), Anheuser Busch InBev (BUD), ConocoPhillips (COP), Estee Lauder (EL), Mastercard (MA), Merck (MRK), Roblox (RBLX), Rockwell Automation (ROK), Uber (UBER), Apple (AAPL), Amazon (AMZN), Intel (INTC), Juniper Networks (JNPR), United States Steel (X)
●Friday: Chevron (CVX), United States Cellular (USM), Wayfair (W), Exxon Mobil (XOM)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

As critical as this week’s earnings may be to setting the market’s near-term tone, it would also seem logical that uncertainty about the presidential election could potentially keep the lid on any excessive moves in the major stock indexes. Many investors may, after all, prefer to sit on their hands until the outcome is clear.

As with many things that appear to “makes sense” at first glance, this outlook doesn’t appear to hold water, at least not in terms of the past 16 elections. Consider the following chart, which shows the SPX’s returns the week before presidential elections (blue) and during election week itself (orange):

The chart appears to show a “tendency” toward larger returns (up and down) in recent years, in both pre-election and election weeks. However, it’s important to remember the biggest move—the week before the 2008 election—occurred during the extreme volatility of that year’s financial crisis.

Overall, though, larger returns (positive or negative) around elections have been more the exception than the rule. The SPX’s average performance in pre-election and election weeks has been, well, average—although returns were somewhat stronger in pre-election weeks:

1. The SPX gained ground in 10 of 16 pre-election weeks (62.5%) and nine of 16 election weeks (56.3%). The index’s overall percentage of up weeks was 56.5%.

2. The SPX’s median return in pre-election weeks was 0.8%, and its median return in election weeks was 0.3%.² The index’s median return for all weeks was 0.3%.

One caveat is that the SPX has been more volatile than average during these two weeks. Since 1960, the SPX’s average weekly “true range”—its maximum move, up or down, from the previous week’s close—is 2.5%. That figure is 3.2% for pre-election weeks, and 3.5% for election weeks. In other words, even if the typical returns during these weeks were more or less in line with historical averages, that doesn’t mean the market wasn’t moving more than usual before the weeks ended.

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¹ MorganStanley.com. Bifurcation. 10/21/24.
² All figures reflect S&P 500 (SPX) weekly prices, 1960-2024. Supporting document available upon request.