‘Dead Heat’ Election Has Stocks Playing Defense: Markets Wrap

(Bloomberg) -- Stocks lost traction, bonds rose and the dollar fell, with polls continuing to depict a tight race in the US presidential election ahead of the Federal Reserve decision.

Equities hovered near session lows after the Wall Street Journal reported Russia is suspected of plotting to send incendiary devices on U.S.-bound planes, citing Western security officials. Even before that report, options markets show many on Wall Street staying defensive as flurry of polls showed US voters narrowly split both nationally and across the pivotal swing states that will decide the election. Treasury yields fell across the curve and dollar dropped the most since August.

The other positioning challenge is the number of additional catalysts surrounding the vote that are likely to move the market. Election Day will quickly be followed on Thursday by the Fed decision and Jerome Powell’s press conference, where he’ll give details on the central bank’s interest-rate path. And a big chunk of US companies are still due to report their earnings.

“Normally, the Fed rate announcement would dominate the week’s discussion, but this isn’t just any week,” said Chris Larkin at E*Trade from Morgan Stanley. “Traders and investors who have been waiting for the outcome of the election have to prepare themselves for the possibility of a delayed outcome, and the potential impact of that uncertainty on the markets.”

Regarding equity market performance, the S&P 500 tends to see positive returns to close out the year after Election Day, according to Bespoke Investment Group. For all years since 1990, the median gain has been 3.3% with positive returns 25 out of 34 times. For election years, performance has tended to be modestly stronger with a median gain of 3.9% and gains six out of eight times.

The S&P 500 fell 0.5%. The Nasdaq 100 dropped 0.4%. The Dow Jones Industrial Average dropped 0.9%.

Treasury 10-year yields nine eight basis points to 4.30%. The Bloomberg Dollar Spot Index fell 0.4%. 

Oil advanced after OPEC agreed to push back its December production increase by one month and tensions heightened in the Middle East.

“Of course, the US election will play a prominent role in moving financial markets around this week,” said Anthony Saglimbene at Ameriprise. “However, a Federal Reserve policy decision on Wednesday, some light economic releases throughout the week, and roughly 20% of the S&P 500 scheduled to report third quarter results should also have their fair share of sway on directing stock traffic.”

With both US presidential candidates at a “dead heat” heading into next week’s election, markets are bracing for a result that could lead to a wide range of policy outcomes. Yet, it is notable that, since 1933, equities have almost always risen by double-digits by the end of a president’s term, regardless of their party affiliatio according to Seema Shah at Principal Asset Management.

“Investors should take caution. Those who allow their political opinions to cloud their investing decisions could miss out on the potential rewards that come with staying invested in the market over the long-term,” she noted.

To Dan Wantrobski at Janney Montgomery Scott, US equities remain largely in consolidation mode ahead of this potentially historic week. Investors should expect “more choppy, range-bound trading” in sessions ahead, he noted.

“Depending on how things develop, the markets themselves are teed up for either new highs (the primary trend is still bullish) or bigger drawdowns (overbought conditions remain, with some recent support levels broken),” Wantrobski said.

Corporate Highlights:

Key events this week:

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

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