stock news

With President Joe Biden’s re-election campaign appearing to hang by a thread after last week’s debate debacle, investors understandably may wonder whether a change at the top of the Democratic ticket would move the stock market. To understand this, it’s useful to examine how the market has reacted to swings in the race between Biden and his Republican challenger, former President Donald Trump. “The market has been consistently trending in the same direction as President Trump’s odds of victory in November,” said Adam Turnquist, chief technical strategist at LPL Financial, in a phone interview. Turnquist first noted a change in this relationship in March, when the market and Trump’s prospects began to move in tandem. However, Turnquist cautioned that this doesn’t mean market participants are necessarily endorsing Trump’s policies. “I don’t think you can make the case that the market is moving higher because Trump’s odds are moving higher,” Turnquist said. “But we know the market doesn’t like uncertainty.” As Trump’s chances of winning have seemed more assured, the market has taken comfort in that certainty. Turnquist noted that earlier in 2024, when Biden was favored to win, the market had also shown a positive correlation with the president’s re-election chances. In essence, the market seems to react positively to the prospects of a decisive victory by either candidate. Uncertainty around the Democratic ticket, meanwhile, could further boost certainty around a Trump victory or even a Republican congressional sweep. Speculation about Biden’s candidacy has intensified since the June 27 debate, where his performance was widely criticized. Democratic politicians have expressed concerns about Biden’s condition and viability. White House Press Secretary Karine Jean-Pierre stated Wednesday that Biden was “absolutely not” withdrawing from the race. Vice President Kamala Harris on Wednesday moved ahead of Biden in some betting markets regarding who will be the Democratic presidential nominee. Meanwhile, Trump’s odds of victory were pegged at 59% on PredictIt as of Wednesday, while Biden’s fell to around 16%. Post-debate polls have shown some shift towards Trump, though the race remains close. A Suffolk University/USA Today poll published Tuesday showed Trump ahead of Biden by 3 percentage points in a six-candidate field, after previously finding the candidates tied a month ago. Turnquist shared a chart showing the rolling three-month correlation between Trump’s prospects, based on PredictIt’s prediction market, and the S&P 500, now standing at 0.31. While not particularly high (a correlation of 1.0 would mean they move in lockstep, while -1.0 would mean they move perfectly in opposite directions), the correlation is stronger than other factors. For instance, the correlation between moves in the 10-year Treasury yield and the S&P 500 index is roughly zero, indicating little current influence on each other. Jeff deGraaf, founder of Renaissance Macro Research, recently noted that the negative correlation between Biden’s standing in the polls, based on the RealClearPolitics polling average, and the S&P 500’s performance, while not statistically significant, explains stock-market performance this year better than other factors like oil prices, Treasury yields, Federal Reserve policy, corporate bond spreads, purchasing managers’ index readings, inflation data, and gross domestic product. Some investors and strategists argue that prospects of a Trump victory — which could bring a full extension of his 2017 tax-cut package and further deregulation — have been market positives. In a Monday note, equity strategists at Morgan Stanley led by Mike Wilson said that after last week’s debate, clients were showing interest in small-capitalization and cyclical stocks that benefited following Trump’s 2016 election victory. However, they warned investors to note important differences between now and then. “First, we think the data indicates that the cycle is more mature today, which supports a quality and large-cap bias,” they wrote. “Further, the market welcomed a reflationary/pro-fiscal playbook in 2016 as the economy was recovering from the manufacturing/commodity downturn of 2015, and inflation was broadly not a headwind for consumers.” While neither Biden nor Trump are expected to significantly rein in fiscal deficits, prospects for a broader extension of tax cuts and other measures were cited as reasons for a sharp rise in Treasury yields following the debate. An important thing for investors to keep in mind is that election years tend to see increased volatility as November approaches, Turnquist said. Another key point to watch is how the stock market performs in the three months leading up to Election Day on Nov. 5. Over the last 100 years, the market’s performance during that period has predicted 20 of 24 election outcomes, Turnquist noted — with the incumbent tending to win when the market rose, and losing when it fell. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Wall Street’s biggest bear, Chief Market Strategist Marko Kolanovic, is leaving JPMorgan Chase & Co. after 19 years. According to internal memos, Kolanovic is departing to pursue new opportunities, as first reported by Bloomberg News. Kolanovic’s exit comes after a challenging two-year period of market calls where he stayed bullish as stocks plummeted in 2022 and turned bearish just as the market began recovering in late 2023. Claudia Jury and Scott Hamilton, global co-heads of sales and research at JPMorgan, announced that Hussein Malik, previously co-head of global research with Kolanovic, will now lead the global research team solo. Dubravko Lakos-Bujas will take over as the new chief market strategist, overseeing the markets strategy group, while Steve Dulake and Nick Rosato will co-lead the newly unified credit and equity research team. Despite Kolanovic’s year-end S&P 500 target of 4,200 for 2024, which was the lowest among major Wall Street banks, many of his peers have raised their targets in response to the index’s rise. Kolanovic’s successor, Lakos-Bujas, has favored large-cap growth stocks but warned of the market’s increasing dependence on these megacap names. Kolanovic’s bearish outlook was based on concerns about a potential U.S. recession due to high interest rates and what he viewed as overly optimistic earnings expectations for U.S. stocks, particularly in the tech sector. He recommended defensive stocks and increasing exposure to commodities like gold. JPMorgan has not commented on whether Kolanovic’s bearish stance influenced his departure. His exit reduces the number of bearish voices among professional investors, though some like Peter Berezin of BCA Research and Barry Bannister of Stifel remain cautious about the market’s future. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

After a strong 14.5% rise in the first half of the year, S&P 500 futures indicate a challenging start for the second half of 2024, according to Michael Kramer, founder of Mott Capital Management. Kramer notes that the cautious start to July follows a concerning end to June, making stocks vulnerable to a pullback. Last Friday, the S&P 500 fell 0.4% after hitting a record intraday high, resulting in a bearish engulfing candle—a negative technical signal. A bearish engulfing candle occurs when a trading session’s range surpasses the previous session’s range but closes lower. This was the second such candle in a week, forming a “2b top reversal pattern.” This pattern suggests that an index or stock attempts a new high, fails to maintain it, and then closes below the previous high. Kramer highlights that last week’s high exceeded the previous week’s but ended lower over the five-session period. Since January 2020, this pattern has appeared only eight times, and in seven instances, the S&P 500 fell the following week. The only exception was in January 2021. For the ‘2b top’ pattern to be invalidated, the S&P 500 must close above 5,487.02 this week, according to Kramer. Other indicators also support Kramer’s caution. The CBOE 1-month implied correlation index, an options-based tool measuring market breadth, hit a record low of 5.59%, below the previous low of 6.78% in October 2017. Additionally, Kramer is wary of the VanEck Semiconductor ETF, which is holding at a 20-day moving average of around $255. A break below this level would signal a downward move. Kramer also notes that high-yield credit spreads, a measure of risk in corporate borrowing, are trending higher even as stock prices rise. Similar conditions in January 2020 and fall 2021 preceded significant market pullbacks. Addressing skepticism, Kramer acknowledges that some may find it hard to believe the S&P 500 could drop significantly. However, he argues that caution is warranted given the market’s rapid rise since October 2023, despite high overnight rates and Federal Reserve policies. “Being cautious isn’t about being bearish. It’s about assessing the odds and managing risk,” Kramer concludes. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

A strategist warns that a lack of budget restraint from either Biden or Trump could result in more frequent weak Treasury auctions. A significant takeaway from Thursday night’s debate between President Joe Biden and Republican challenger Donald Trump is that the U.S. is unlikely to see fiscal restraint regardless of who wins the November 5th election. Both candidates are likely to extend parts or all of the 2017 Trump tax cuts, which include provisions for households set to expire at the end of 2025. Biden plans to extend these for individuals making under $400,000, while Trump aims for a full extension. However, the ability of either candidate to implement these policies will depend on their control of Congress. The Congressional Budget Office estimates that extending the Trump tax cuts for the next decade would add about $4.6 trillion to the deficit, which currently stands at around $1.2 trillion with two-thirds of the fiscal year completed. On Friday, U.S. government debt sold off, pushing yields on 10-year notes and 30-year bonds to their highest closing levels in over two weeks. “There’s a slim chance of fiscal restraint as both candidates aim to renew parts of the Tax Cuts and Jobs Act,” said Will Compernolle, a macro strategist at FHN Financial in New York. “I’m unsure where the political will to narrow the deficit will come from,” he added, noting that even a divided government that causes gridlock tends to maintain the status quo, which is a widening deficit. A lack of fiscal restraint usually leads to more issuance of U.S. government debt, raising concerns about the $27 trillion Treasury market and the potential for waning investor appetite leading to broader disruptions. Compernolle suggests, “We might see more frequent weak auctions, indicating low demand for higher supply. However, this will likely happen incrementally rather than as major disruptions.” Treasury auctions are a primary method for traders and investors to express their views on the growing government debt. Parts of Wall Street have been unsettled by the possibility that investors’ appetite for this debt might be limited. For instance, a poorly received 30-year auction in November briefly sent the corresponding Treasury yield up significantly and marked a period where weak demand at debt sales negatively impacted stocks. Similar shaky auction results were observed last month. BMO Capital Markets strategists Ian Lyngen and Vail Hartman point out two main risks for the Treasury market. One is a resurgence of inflation, pushing interest-rate expectations into 2025. The other risk is a sweep by either party in the election, allowing greater deficit spending without fiscal checks. “A split control between the White House and Congress would limit further deficit growth, although it could bring the debt ceiling debate back into focus,” Lyngen and Hartman wrote in a note this week. Earlier this month, the Congressional Budget Office updated its projections, expecting the federal budget deficit to reach $1.9 trillion in fiscal 2024, or $2 trillion with certain adjustments, and federal debt held by the public to reach 122% of GDP by 2034. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Something unusual is happening on Wall Street, boosting the confidence of stock-market bulls as the first half of 2024 draws to a close. Corporate-earnings estimates, which typically decline throughout the year, are actually growing, according to FactSet data. John Butters of FactSet shared with MarketWatch that S&P 500 firms have seen their earnings-per-share estimates for 2024 increase by 2.4% since late December, reaching $244.79. In contrast, bottom-up estimates have typically fallen 2.6% on average during the first six months over the past decade. Estimates for 2025 are also rising, up 4% to $279.46, compared with an average decline of 1.7% for the second year out. Analysts expect the S&P 500 to report year-over-year earnings growth of 11.3% in 2024 and 14.4% in 2025. This optimism is strengthening bullish investors’ confidence despite a growing list of concerns from market skeptics. Common concerns include high valuations for large-cap stocks, the S&P 500’s dependence on Nvidia Corp., political risks related to the upcoming U.S. election, and uncertainty around the Federal Reserve’s interest-rate cut, even as data suggest the U.S. economy is straining under high interest rates. Despite these worries, many Wall Street strategists are optimistic, with several recently raising their price targets for 2024, citing rising corporate forecasts to support their positive outlooks. “We’ve been surprised by how rapidly expectations for earnings have grown,” said a team at Capital Economics on Friday, announcing their decision to raise their 2024 price target for the S&P 500 to 6,000. Expectations vs. reality To be sure, earnings expectations are merely that — expectations. Typically, Wall Street’s forecasts for the largest companies are too conservative. This was evident in the first quarter when S&P 500 firms outperformed estimates, mainly due to contributions from Nvidia and other giants like Microsoft Corp. The return to strong earnings growth in the first quarter marked a significant shift from 2023, when an “earnings recession” led to just 1% growth. Despite this turnaround, some skeptics worry that the AI boom has introduced uncertainty to Wall Street’s earnings outlook. The timing of AI’s promise to boost productivity remains unclear, and so far, aside from Nvidia and a few semiconductor companies, few firms have significantly benefited from AI. The Capital Economics team acknowledged the risk of overly optimistic earnings expectations but saw no reason to doubt them, given the strong performance in the first quarter. Wall Street does not expect Nvidia and its peers to sustain their rapid earnings growth. Consensus forecasts for the S&P 500 suggest that the top 10 stocks’ contribution to overall earnings growth will decline in the second half of 2024, while contributions from the other 493 companies will rise. This trend is expected to continue into early 2025. The big question: Can margin growth keep up? Bearish investors see a potential inconsistency between earnings expectations and sales growth. FactSet estimates suggest sales will grow by just 5% in 2024 and 5.8% in 2025, meaning companies will need to expand net margins to meet profitability targets. Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, noted that consumer prices are no longer rising faster than wholesale prices, limiting companies’ pricing power. Any further margin expansion will likely require cost-cutting, lower labor costs, or increased productivity, Shalett said. Some previously skeptical investors are becoming more optimistic about margin expansion. S&P 500 companies reported an aggregate net profit margin of 11.8% for the first quarter, close to the record 12.2% margin in 2021, according to FactSet. This convinced James Abate, fund manager of the Centre American Select Equity Fund, that large American companies might continue expanding their margins in the coming quarters. He previously viewed this as a potential hurdle for the rally. “I’m becoming more optimistic about it,” Abate told MarketWatch. U.S. stocks traded mixed on Monday, with the S&P 500 losing 0.3% to 5,447.87 and the Nasdaq Composite shedding over 192 points, or 1.1%, to 17,496.82. Both indexes were affected by a 6.7% decline in Nvidia shares, officially entering correction territory. The Dow Jones Industrial Average, meanwhile, gained over 260 points, or 0.7%, to close at 39,411.21. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com