Wall Street Reacts to Election Anxiety and Tech Earnings
On Wednesday, Wall Street experienced a sell-off ahead of significant mega-cap tech earnings and the upcoming U.S. presidential election on November 5th. The tech-heavy Nasdaq 100 ETF (QQQ) was the hardest hit among major indices, dropping over 2% on Thursday, which wiped out its gains from earlier in the week. Despite this decline, QQQ has seen a rise for seven consecutive weeks.
Market Reactions to Elections
Investors generally prefer certainty, so market volatility is common around U.S. presidential elections, especially one as contentious as the upcoming 2024 race. Typically, this uncertainty decreases once results are announced. Historically, U.S. presidents can influence various sectors; for example, the clean energy sector may perform better under a Harris administration. However, the overall market impact tends to be less pronounced. For instance, both Trump and Obama achieved around 16% annualized returns during their presidencies.
Technical Analysis
The correction observed today stems not only from election-related uncertainty but also from a natural trend. After seven straight weeks of gains, some profit-taking is expected. Notably, QQQ is retreating towards its 10-week moving average, marking the first pullback since its recent breakout. This average is often seen as a buying zone during bull markets, like the current one.
Image Source: TradingView
At the same time, the S&P 500 Volatility Index (VIX), which measures market fear, is encountering a resistance level established since early September.
Image Source: TradingView
Seasonal Trends
Based on historical seasonal trends, short-term outlook is generally favorable for bulls as we approach year-end. Jeffrey Hirsh of “The Stock Trader’s Almanac” indicates that the Nasdaq has risen in 9 of the last 12 first trading days of November. Additionally, November has been the strongest month in the past decade for the stock market, especially during election years since 1950.
Strong Earnings Performance
According to Sheraz Mian, Director of Research at Zacks Investment Research, “Total Q3 earnings for the 258 S&P 500 members that have reported results through Wednesday, October 30th are up 8.9% on 5.0% higher revenues, with 74.4% beating EPS estimates and 59.3% exceeding revenue estimates.”
Alphabet (GOOGL) and Tesla (TSLA) each surpassed Zacks Consensus Estimates by over 15%. Notably, Tesla achieved this for the first time in several quarters.
Image Source: Zacks Investment Research
The AI sector continues to gain momentum. Despite Advanced Micro Devices (AMD) experiencing a decline due to weaker-than-expected future guidance, its data center growth has more than doubled year-over-year. Moreover, stocks sensitive to interest rates, like Root (ROOT) and Carvana (CVNA) have surged following their earnings reports, as expectations rise for rate cuts from Jerome Powell and the Federal Reserve.
Market Sentiment
Recent days have seen a shift in sentiment from “greed” to nearly “fear” levels, according to the CNN Fear/Greed Index. Historically, the stock market performs well when investors exhibit such caution, as it tends to rise amid uncertainty.
Image Source: Zacks Investment Research
Final Thoughts
While jitters are typical on Wall Street during a fiercely contested presidential election, it is crucial for investors to remain focused on the ongoing bull market.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
