Nasdaq 100 and S&P 500: Markets Brace for Election Volatility and Fed Rate Cut

Stocks Nudge Higher as Presidential Election Begins

U.S. stock futures rose slightly Tuesday as Wall Street braced for a high-stakes presidential election. The S&P 500, up over 19% year-to-date, remains 3% below its record high. NBC News polling shows a close race between former President Donald Trump and Vice President Kamala Harris, with additional attention on which party controls Congress. A party sweep could prompt significant changes in tax and spending policies, impacting the market’s end-of-year trajectory.

Historical Election Market Trends Signal Potential Volatility

Since 1980, U.S. stock markets typically rise between Election Day and year-end, though short-term volatility is common immediately after elections, especially if results are delayed. Alicia Levine, head of investment strategy at BNY Mellon, noted that a divided Congress might bring stability, reducing the risk of aggressive policy changes that could unsettle investors.

Fed Rate Decision Adds to Investor Anticipation

Investors also await the Federal Reserve’s policy decision on Thursday, with the CME Group’s FedWatch Tool showing a 98% likelihood of a quarter-point rate cut. Following September’s half-point cut, Fed Chair Jerome Powell’s comments will be closely analyzed for future policy indications. Additional economic data, including the October ISM Services PMI, may provide insights into service-sector health, influencing Fed outlooks and market sentiment.

Earnings and Company News: Mixed Signals

Corporate earnings continue to drive stock movements. Palantir surged 12% in premarket trading after robust quarterly results, while NXP Semiconductors fell 5% due to a weaker outlook amid macroeconomic concerns. Dollar Tree advanced 4% on a CEO transition, while Wynn Resorts dipped 2% on disappointing earnings. These earnings underscore mixed economic conditions, with some sectors thriving—particularly technology—while others face headwinds.

Bank of America’s election playbook projects that a Republican win could benefit financial firms like Robinhood and Nasdaq, potentially lifting regulatory pressures. Conversely, a Harris-led administration might initially favor firms like BlackRock due to likely regulatory shifts on fees. However, BofA cautions that Trump’s proposed tariffs and immigration restrictions could increase inflation and reduce GDP growth, possibly dampening benefits of lower taxes.

Treasury Yields Reflect Election Jitters

U.S. Treasury yields rose slightly on Tuesday, with the 10-year yield up to 4.329% and the 2-year yield at 4.191%, as bond markets adjust to potential shifts in fiscal policy.

Market Outlook: Short-Term Volatility Likely, Year-End Gains Possible

Near-term volatility is expected as election results unfold, but historical trends suggest positive momentum toward year-end. However, longer-term gains hinge on the political landscape, Fed policy direction, and regulatory changes, making this a pivotal week for market positioning.