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US futures dropped in early European trade following yesterday’s losses. The tech sector will be in focus following disappointing earnings from Meta and Microsoft, both falling 3.7% and 3.8%, respectively, in pre-market trading. Apple and Amazon will report their results this evening and we will have more US macro data to look forward to in the last day of the week, namely US non-farm payrolls and ISM services PMI. With the US presidential election nowadays away, it looks like stock investors are finally de-risking and turning a bit more cautious now. Thus, the long overdue correction might be underway finally, even if, ultimately, this proves to be just a short-term dip. In any case, extra caution is warranted until at least after the election.Overnight saw APAC stocks struggled to gain momentum, reacting to a downbeat session in the US as investors absorbed mixed signals from China’s PMI data. The Bank of Japan, in line with expectations, left rates unchanged and held back on any new policy hints, which left markets largely unmoved. Meanwhile, European equities made a negative start, with Euro Stoxx 50 down by 0.5%, extending Wednesday’s 1.3% decline. Sentiment turned sour on Wednesday as investors absorbed mixed earnings and macro data. Super Micro Computer plummeted nearly 33% after Ernst & Young, its auditor, resigned and declined to certify the company’s financials. Wednesday’s release of a stronger Q3 Eurozone GDP print (+0.4%) overshot expectations, as too did inflation data today (with a +2.0% CPI print), dampening hopes for a more aggressive ECB rate cut. Luxury stocks added to the weakness, with names like Moncler, LVMH, and Kering declining in Europe on Wednesday.The focus will now turn back to the US with more earnings and the presidential election to come.
Earnings in focus as volatility risesMarket volatility has edged higher as the VIX climbed to 21.80 today (+7.2%), signaling increased unease amid earnings and ahead of next week’s US election, as well as key economic data releases. Today’s highlights on the economic calendar included PCE inflation (+0.3%, as expected) and jobless claims (216K vs. 229K expected), hardly moving the markets, while the more important October nonfarm payrolls report and ISM services PMI will be released on Friday. Options activity has ramped up around post-earnings stocks like AMD and Alphabet, as anticipation grows for this evening’s results, putting Amazon and . Microsoft and Meta both exceeded revenue expectations in after-hours reports but traded lower; Microsoft’s decline followed a disappointing Azure growth forecast, while Meta’s drop came on news of increased AI spending.
US election uncertainty and market impactThe prospect of a Republican sweep in upcoming elections is dominating market conversations this week, with the amid gains in the polls and betting terminals. While Trump is seen as a more business-friendly candidate than Kamala Harris, which should, in theory, be positive for US stock markets, it is not as simple as that. For one thing, his proposals for more tariffs could hurt European and Chinese assets, providing a negative scenario for global markets. We have already seen some stress in these markets in recent days, and for the euro and yuan. For another, investors are now also weighing how a Republican control of both Congress and the White House could affect US fiscal policy, and what that could mean for the markets. The concern here is that a Trump clean sweep would bring increased spending and tax cuts. Coupled with his proposed tariff regime, this potential policy shift adds another layer of inflationary pressure, even as US borrowing remains significantly high.These expectations are already impacting the Treasury market, which is seeing one of its toughest stretches this year. A sell-off in bonds has sent the 10-year yield trending around 4.30%. Bonds are on course towards their first monthly decline since April. While prices have steadied today, the broader trend signals continued pressure on the Treasury market as investors react to the prospect of a more fiscally expansive government.Bond market weakness is also driven by factors beyond election outcomes. The resilience of the US economy has led traders to expect a shallower path of Fed interest-rate cuts, which adds another headwind for bonds, and possibly stocks as valuations look quite stretched following the recent big rally. As yields continue to press higher, investors’ preference for guaranteed fixed nominal returns of around 4.3% or potentially more per annum, might outweigh holding onto growth stocks. This is something to keep an eye on.
S&P 500 technical analysis and trade ideasAs I have highlighted the possibility in my previous posts on the ES, the S&P futures chart shows a technical breakdown below the trend line of its wedge pattern that had been in place since markets last bottomed in August. This is a modestly bearish development, which signals that the correction phase might be underway now. At the time of writing, the index was testing the prior support and resistance area around 5805. Failure to hold its own around this area of slightly below could pave the way for a more significant drop to test the July high of 5721 next. What happens there will determine the next directional move for the S&P. A decisive break back below the July high could pave the way for a potential drop to the next support seen around the 5532 to 5561 area.Meanwhile, key resistance is now the backside of the broken trend line around 5865 zone. A daily close back above this level would invalidate the bearish signal that has emerged this week. Above this level is the all-time high at 5927.(Click on image to enlarge)
Source: TradingView.comOverall, the short-term risks are skewed to the downside, both from a macro point of view, with the election being so close now, and from a technical perspective given the break of the trend support mentioned above. This does not mean that the long-term bull trend is over by any means, but this week’s price action does serve as a reminder that the markets go down as well as up, underscoring the necessity to always have appropriate risk management strategies in place.More By This Author:GBP/USD: UK Budget, US Election, And Key Data On The HorizonS&P 500: Stocks Rebound On Positive Earnings Amid US Election Uncertainty EUR/USD Undermined As Dollar Gains Further Ground Ahead Of US Election
US Stocks Drop Ahead Of Key Earnings, Data And Election
