Investors are closely following the third-quarter US corporate results, with almost 80% of reports so far exceeding analyst expectations. This strong performance has driven the US market to hit another record high, marking its sixth consecutive weekly gain. As the US Presidential election on November 5th approaches, the coming weeks will see a flood of new corporate reports. If the trend continues, many of the ongoing market uncertainties could be overshadowed. These uncertainties range from geopolitical tensions involving the Ukraine/Russia conflict and the Middle East, where Israel appears to be on the verge of retaliatory action against Iran. There’s also speculation over how quickly the Federal Reserve will reduce interest rates, which currently stand at 5%, with expectations for a cut to 3.5% either by the end of next year or sometime in 2026.
In China, the Central Bank cut general and property lending rates by 0.25% as anticipated, but the market is looking for more aggressive action in the near term. In the US, money markets are pricing in a 92% and 86% probability of a 0.25% interest rate cut at the upcoming Federal Open Market Committee meetings scheduled for November and December. Meanwhile, the UK market expects a similar cut during their policy meeting on November 7th, following last week’s reduction by the European Central Bank. Today, the Bank of Canada is expected to announce an even larger cut. Although Canada’s economy grew at an annual rate of 2.1% in the second quarter, the Bank of Canada’s governor, Tiff Macklem, has expressed concerns about potential risks to jobs and the broader economy, particularly from falling oil prices.
US market strength has also been supported by opinion polls from key swing states that will decide the next President. The political pendulum has gently swung back in favour of Trump, who is once again the frontrunner. His policies, which include increased borrowing and spending, are expected to keep inflation and interest rates higher. Even Bitcoin has seen a surge, boosted by Trump’s favourable stance on cryptocurrency. On the other hand, Democrats are not in a panic but have found hope in the efforts of Taylor Swift’s fanbase, who are actively supporting Kamala Harris. However, it remains to be seen whether these young supporters will turn out to vote.
Positive economic data has further bolstered investor confidence, suggesting that the economy may continue to grow rather than experience a soft landing. Retail sales have outpaced expectations, employment remains stable, and leading economic indicators point towards moderate growth at a time when inflation is nearing target levels.
On the corporate front, Netflix saw a notable 11% rise in its share price after delivering operating income that exceeded expectations by 7%. Positive news about price increases, user engagement, and future advertising trends is expected to boost profit margins. The company also reported 5.1 million new subscribers, which is a million more than anticipated, with a strong Christmas quarter ahead.
Boeing’s shares also saw some relief as the aerospace giant proposed a 35% wage increase over four years to its striking employees. A vote on the offer is due today, but the issue of pensions remains unresolved. Meanwhile, French luxury goods company LVMH fell short of expectations, with weak sales in Asia continuing to weigh on the company’s earnings. The firm’s stock has now dropped by nearly 20% since the beginning of the year, leaving shareholders disappointed.
Looking ahead, investors are focused on Thursday’s US Purchasing Manager Indices for both Manufacturing and Services. These reports will provide further insight into the strength of the economy. Friday will bring the latest data on Durable Goods Orders, along with the Michigan Consumer Sentiment index, which has shown an upward trend in recent weeks.
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