US500 braces for US election/Fed showdown :: InvestMacro

• US500 ends October ↓ 1%, still up ↑ 20% YTD
  

• April & October only negative trading months this year

• US election & FOMC decision = big price swings?

• Fed expected to cut rates by 25bp in November

• Technical levels – 5770, 5675 & 5600

FXTM’s US500, which tracks the benchmark S&P 500 index is heading for its worst week since early September.

Disappointing earnings reports from Microsoft and Meta sent the index tumbling almost 2% on Thursday while weaker-than-expected sales in China pressured Apple shares post-market trading.

And we could see more action this afternoon due to the key US jobs report (Friday 1st November).

But all eyes will be on the pivotal US election along with major central bank decisions in the week ahead:

Monday, 4th November

• Public holiday in Japan
• CN50: China’s NPCSC meeting
• GER40: Germany HCOB Manufacturing PMI
• USDInd: US factory orders

Tuesday, 5th November

• CN50: China Caixin Services PMI
• SG20: Singapore retail sales
• AU200: RBA rate decision, Judo Bank Services PMI
• UK100: S&P Global Services PMI
• US500: US Presidential election, ISM Services PMI

Wednesday, 6th November

• GER40: HCOB Services PMI, PPI
• TWN: Taiwan CPI
• JP225: BoJ meeting minutes
• CAD: BoC meeting minutes

Thursday, 7th November

• CN50: China trade, forex reserves
• GER40: Industrial production, balance of trade
• SEK: Riksbank Rate decision, CPI
• UK100: BoE rate decision
• US500: FOMC rate decision, initial jobless claims

Friday, 8th November

• CAD: Employment change
• TWN: Taiwan trade
• UK100: BoE Chief Economist Huw Pill speech
• USDInd: US University of Michigan consumer sentiment

Despite recent losses, the US500 is still up almost 20% year-to-date – adding to the 24% gains secured in 2023. Still, the index’s outlook hangs on how events play out in the week ahead…

Here are 3 reasons you should keep a close eye on the US500:

 

    1) US Presidential election

US voters head for the polls on Tuesday, 5th November in what has been a tight presidential race.

This will be the most significant event for the United States in 2024, potentially influencing US stock markets depending on who becomes the new president.

• A Trump victory could push the US500 higher due to the prospect of corporate tax cuts and a softer regulatory environment boosting company profits.

• A Harris victory may trigger a “relief rally” as policy continuity removes an element of uncertainty. However, the upside could be capped by a potential hike in corporate taxes and tough regulations.

• If the US election results are delayed or contested, the US500 may tumble amid the uncertainty.

 

    2) FOMC rate decision

Just two days after the US election the Federal Reserve is expected to cut interest rates by 25 basis points in November. But this decision could be influenced by the incoming US jobs report and the election outcome.

Although annual inflation has edged closer to the Fed’s 2% target, economic data remains mixed. A strong jobs report could fuel bets around slower-than-expected Fed rate cuts. But the election outcome is likely to determine what action the Fed takes in December and beyond.

• A Trump victory could boost economic growth – triggering inflationary pressures. This may prompt the Fed to keep interest rates higher for longer.

• A Harris victory that sees tax hikes and more caution to government spending may impact growth – possibly cooling inflation. Such a development could provide room for the Fed to cut rates.

Traders are currently pricing in a 95% probability of a 25-basis point cut in November with a 68% probability of another cut by December.

Considering how tech stocks account for over 30% of the S&P 500 weighting, the Fed decision could trigger price swings. Tech stocks are influenced by interest rates because their value is based on earnings forecasted in the future.

 

    3) Technical forces

The US500 has breached the bullish channel on the daily timeframe with prices trading 3% away from the all-time high at 5890. Interestingly, the Relative Strength Index (RSI) is approaching 30 – signalling that prices could be entering oversold zones.

• If 5675 proves to be reliable support, prices may rebound back toward 5770, 5820 and 5890.

• A solid breakdown and daily close below 5675 could see bears target the 100-day SMA at 5600 and 5550.