Stocks Could Face Their Scariest Week of 2024. Here’s Why.

The U.S. stock market, which has seen impressive gains throughout 2024, could be heading into a particularly challenging period as a series of critical events loom in the week ahead. With risks spanning from corporate earnings reports, volatility in debt markets, jobs data, and the final stretch of a heated presidential election, the market faces a complex web of uncertainties.

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Key Drivers of Market Uncertainty

This upcoming week will test the resilience of the stock market, with much of the focus on earnings from major technology companies, fluctuations in U.S. government debt, and the October jobs report, all occurring against the backdrop of heightened political tensions as the U.S. presidential election approaches.

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"The situation is a coin toss, and it’s definitely unsettling the rates market," said Dec Mullarkey, head of investment strategy and asset allocation at SLC Management. According to him, the 10-year Treasury yield has surged significantly in the past month, reflecting growing anxiety about the upcoming election. These election concerns have been notably felt in the Treasury and gold markets, especially with polls indicating a tight race as the Nov. 5 election nears.

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Focus on Big Tech Earnings

Despite the overarching political uncertainty, the S&P 500 managed to push higher on Monday. A contributing factor was Tesla Inc.’s remarkable performance, having gained approximately 22% in the previous week following strong third-quarter earnings and an optimistic outlook that impressed Wall Street. However, Monday saw a slight dip in Tesla’s stock.

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Attention now shifts to the earnings reports from some of the largest tech companies. Alphabet Inc. is set to release its earnings on Tuesday, followed by Microsoft Corp. and Meta Platforms Inc. on Wednesday, and Apple Inc. and Amazon.com Inc. on Thursday. Nvidia Corp., a key player in the AI chip market, will report its results on Nov. 20.

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"This week is crucial, with the ‘Magnificent Seven’ tech giants playing a pivotal role," said Eric Beiley, executive managing director of wealth management at Steward Partners. He emphasized that these companies need to deliver strong earnings reports, especially given that their stocks are trading at elevated valuations.

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Earlier this year, there was a broadening of the rally beyond the mega-cap tech stocks to include midcap and small-cap stocks. These smaller companies were seen as potential beneficiaries of a future Federal Reserve pivot toward cutting interest rates. However, in recent days, the Russell 2000 index, which tracks small-cap stocks, fell by 3%, while the S&P 500’s technology sector posted a modest gain of 0.2%, according to FactSet data.

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Keith Lerner, co-chief investment officer at Truist Advisory Services, noted that big tech earnings could either be a “trick or a treat” for investors. Adding to the volatility, Apple and Amazon’s third-quarter earnings releases coincide with Halloween, a date that often sees market turbulence due to month-end portfolio rebalancing.

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Amid the focus on earnings, Friday’s jobs report for October will bring the labor market back into the spotlight. Federal Reserve officials are hoping for a delicate balance in the labor market—neither cooling too much nor heating up to the point that it reignites inflation fears.

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Analysts are keeping an eye on the data, though there are concerns that it could be skewed by recent events, including strikes at Boeing Co. and the impact of two powerful hurricanes. The September jobs report had provided some reassurance about the economy, calming worries of an impending sharp downturn. However, a persistent concern remains: rising wages, while beneficial overall, could fuel inflation and complicate the Fed’s plans to reduce interest rates meaningfully.

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“It will have an impact unless there’s an extreme result, either very negative or very positive,” said Lerner. He added that while the jobs report will matter on Friday, attention will quickly shift back to the election.

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While the U.S. economy has remained a bright spot throughout 2024, not all households have fully recovered from the financial strain caused by the COVID-19 crisis. Concerns over the upcoming presidential election have added to market unease, particularly in the U.S. debt and gold markets.

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Since September, U.S. government bonds have seen significant selloffs, largely driven by a strong economy that forced the bond market to abandon earlier expectations of Federal Reserve rate cuts. However, political uncertainty surrounding the election has also become a growing factor in market volatility.

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On Monday, the yield on the 10-year Treasury note edged up slightly to 4.25%, following its biggest 26-day gain since last October, according to Dow Jones Market Data. Higher bond yields tend to make borrowing more expensive for consumers, businesses, and the government, adding another layer of complexity to the economic outlook.

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There is little optimism on Wall Street regarding the ability of either Vice President Kamala Harris or former President Donald Trump to address the growing U.S. government deficit. Recently, several high-profile investors, including billionaire Paul Tudor Jones, raised alarms about the country’s mounting debt and the potential impact of Trump’s proposed tariffs and tax cuts if he returns to the White House.

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For now, election jitters remain mostly confined to the bond and gold markets. Mullarkey at SLC Management pointed out that gold has seen a surge in demand, largely driven by central bank buying, which pushed prices to record highs in October. While Mullarkey doesn’t consider himself a "gold bug," he acknowledged that the metal could see further gains if post-election results lead to more uncertainty.

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As of Monday, the three major U.S. stock indexes were higher, with the Nasdaq Composite rising by 0.7%, the Dow Jones Industrial Average up by 0.6%, and the S&P 500 advancing by 0.5%.

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