Here we go… the much-awaited US presidential election will take place tonight. That’s certainly the world’s largest guessing game in terms of scenarios, but also the last big hurdle to clear for markets this year before investors could eventually enjoy a Santa Claus rally. Assuming obviously that (1) incoming economic data remain consistent with the current soft-landing narrative, i.e. resilient growth, tamed inflation and gradual monetary policy easing and (2) the final result of this election doesn’t appear disruptive enough to change this favorable “business as usual” macro backdrop soon.
As a reminder, we identified last week three possible US election-related outcomes, which we deem as the most disruptive: Trump victory and a Republican sweep, Harris victory and a Democratic Congress or a very tight outcome requiring a recount of the votes, with a marginal victory of Kamala Harris and Trump proving a sore loser. While I advised to prepare ahead (for the worst) by finding some way to hedge “efficiently” your back, depending on your current positioning or asset allocation, with some short term direct or indirect protections, I am hoping for the best by keeping an overall constructive scenario for next year. For the time being, my biggest concerns (among the many latent risks) remain an economy running too hot with stubborn inflationary pressures forcing the Fed to eat its hat and/or the come-back of bond vigilantes causing a dislocation in the US Treasuries market. Anyway, by preparing ahead for these worst-case scenarios, you will likely avoid to overreact and therefore remain more focused on your medium-long term strategic views and objectives. In this context, it may be worth to read again my market updates of 2 September 2024 (“Subjects that upset”).
For those who haven’t yet hedged their portfolios for the (short term) risks associated with the US election, it’s perhaps not too late. However, they now have to rush, act under some stress and likely overpay their protection. It makes me think about myself waiting usually the last minute to buy Christmas gifts. But strangely enough, not this year since I’m already well advanced in my gift ideas and purchases… Perhaps a positive “professional deformation” for ounce, or a little wisdom from experience. Anyway, speaking of Christmas (already), presents and similarities with the US election hurdle ahead of us, it is important to remember that sales take place after the Christmas holidays, and that you will often find better deals or entry points. In the same way that in every crisis lies the see of opportunity.
So, as both Santa Claus and a new US President are coming, it is also time to already prepare a gift/buy list too.
Economic calendar
Here we go… the much-awaited US presidential election on Tuesday night will be the key event of the week with likely some unexpected, sharp and jerky asset prices’ moves on the following day(s) as the contest remains neck and neck between Donald Trump & Kamala Harris. Moreover, depending how close the result is, the definitive outcome could potentially be unknown for days as ballots get (re)counted across the country. In this context, key swing states will be amongst the most closely watched races. Keep also in mind that (1) if some states are disputed, we may not know until December 11, the federal deadline for states to certify their electors; (2) Congress meets to count electoral college results on 6 January 2025 and (3) the new President will then be inaugurated/officially in charge on 20 January 2025 at noon. Apart from the presidential election, there will also be the elections for the Congress where the races for control of the Senate and the House will be also in heightened focus given the potential impact on fiscal policy going forward. A divided Congress is perceived by markets as less uncertain or disruptive than a clear-cut majority for Democrats or Republicans.
Investors will have little time to digest and interpret these political results -if any clear definitive conclusions could already be made- before skipping to the next main highlight, namely the Fed meeting on Thursday evening. A 25bps rate cut this time seems now well in the cards, but we can’t rule out Chair Powell to prepare the markets for an eventual pause in December during his press conference. That could lead to another set of jerk and swing dances on financial markets. Otherwise, we will also get other central bank meetings and decisions (RBA on Tuesday, staying put at 4.35% according to the consensus, and BoE on Thursday with a -0.25% decrease to 4.75% expected) as well as the US ISM services October print (tomorrow) and PMI services and composite indices for the euro area on Wednesday.
In China, the National People Congress meeting will be closely watched over the week for more precisions about the stimulus package announced last month (size, time frame, specific details). An official statement is expected to be published on Friday 8, but the full plan may not be disclosed until the NPC full session in March 2025… or even later. In this context, any (positive) reactions to these lack-of-details’ announcement effects will likely be short-lived in my view.
Finally, at the micro level, the earnings season goes on with the notable earnings reports of Qualcomm, Novo Nordisk, Palantir, Ferrari, BMW, Toyota or Sony among many others.
Non-exhaustive list of major Q3-2024 earnings releases over the week
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