Wall Street extends the rally, opening higher on Monday, mainly due to investor optimism in front of megacap tech earnings, continued declines in oil price, and a momentary respite in international tensions. Nowadays, tech earnings in the largest technology companies get more attention, along with relevant economic indicators. Expectations about the upcoming US presidential elections also create more stir in the stock markets.
Key Takeaways
Wall Street's Rally, fueled by optimism on the tech earnings front and further easing of geopolitical concerns, continued.
Quelling fears of major supply disruptions, lower oil prices supported broader market gains.
Important economic data, such as the PCE index and the nonfarm payrolls report, will inform expectations about future Fed actions.
Uncertainty surrounding the U.S. presidential election on November 5 adds another layer of uncertainty, and investors remain prepared for possible market volatility.
Wall Street surges as key tech earnings boost
This week, the focus has been on how the "Magnificent Seven" of major technology giants have presented their earnings reports. Other companies like Alphabet, Meta Platforms, Microsoft, Apple, and Amazon are to follow with financial results that will have a far-reaching impact on Wall Street's Rally. These firms constitute a huge chunk of the total weight of the S&P 500 and have been pivotal in driving the stock market's gains this year.
Jay Woods, chief global strategist at Freedom Capital Markets, added to the impact from the tech sector: "Investors are salivating at the prospect of learning whether capital expenditure on AI and other tech initiatives will be rewarded, or if companies will be penalized for overspending. It is what will dictate whether Wall Street's Rally has more legs.
Alphabet's stock gained 1%, Meta Platforms 0.8%, and Microsoft 0.3% in early trading on Monday, reflecting market optimism ahead of their earnings announcements. Analysts said that their performances will set the tone for the broader market this week.
Decline in Oil Prices Adds to Market Optimism
Another reason that has supported Wall Street's Rally lately is the recent decline in oil prices. Markets breathed a sigh of relief after the targeted strikes by Israel on Iran over the weekend avoided critical nuclear and oil facilities. The restraint calmed fears of a significant disruption in global oil supplies, with crude prices plummeting sharply.
Brent crude futures had fallen 5.7% to $71.31 a barrel, while U.S. West Texas Intermediate lost 6% to $67.45 per barrel during Monday's trade. Tony Sycamore, a market analyst at IG Market said, "The market can breathe a sigh of relief; the known unknown that was Israel's eventual response to Iran has been resolved. However, the downside reaction may be temporary as volatility remains.
But the energy group was not exempt from the declines, falling 1.5 percent as the broader market displayed renewed risk appetite, and easing oil prices still create a good backdrop for Wall Street's rally because lower energy costs can ease inflationary pressures and bring benefits to several sectors.
Economic Data to Define the Week Ahead
Major factors are going to be key economic indicators other than the earnings from tech and oil prices. Investors have been eagerly waiting for several crucial data sets, including the much-awaited Personal Consumption Expenditure index, which happens to be the Federal Reserve's favorite inflation gauge. More importantly, investors are now awaiting the nonfarm payrolls report that is set to be released on Friday.
Economists expect jobs added in October to slow to 111,000 from a pace of more than 200,000 in September, which could be weighed down by effects of strikes and disruptions caused by recent storms. They expect the unemployment rate to remain at 4.1%. How these numbers come out will determine whether the Federal Reserve goes ahead with an expected 25-basis point rate cut at its next meeting.
This week's economic data is critical," said Jan von Gerich, chief analyst at Nordea. "Stronger-than-expected numbers could dampen hopes for a rate cut, which would have implications for Wall Street's Rally heading into the final stretch of the year."
U.S. Presidential Election Adds Uncertainty to the Markets
The U.S. presidential election is scheduled for November 5, and investors have been in a tizzy because the race is very close between the Republican candidate Donald Trump and the Democratic rival Vice President Kamala Harris. In some of the key swing states, analysts predict a really tight contest, and over the last couple of weeks, Trump's fortunes have risen so that he is now tipped to be at a slight advantage according to some of the prediction markets.
The result of this election will, therefore, have very important implications for future economic policies, especially taxes, trade, and federal spending. Markets begin pricing in scenarios based on a possible second Trump administration. Investors keenly wait for the candidates' final campaign efforts as a result of which any shift in public sentiments could create volatility.
Given the stakes, Wall Street's Rally is sensitive to election news," said Jay Woods. "Investors are bracing for any surprises, especially with the impact on sectors like technology, healthcare, and energy."
Conclusion
This week, all those factors have made the drive-tech earnings, the fall of oil prices, and economic data take over the priority list. Even though tensions in the world geopolitically have once again made their appearance for the moment, the shadow still that continues to fall on the market is the presidential election due in the United States of America. Whether this will be able to hold, or whether it gets intercepted by some outside influence changing the positive sentiment the markets had, remains to be seen as investors will watch very keenly.
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