Stocks gapped up at Tuesday’s open and trended higher through the regular trading session amid a broad-based but tech-led rally as Americans headed to the polls to choose their next president.
Strong earnings and a healthy reading on U.S. business activity provided additional impetus for bulls a day before the Federal Open Market Committee (FOMC) gathers for its next policy meeting. On Tuesday the CME FedWatch Tool priced in a 97.4% probability the FOMC will announce a quarter-point rate cut when its meeting concludes on Thursday, down from a 98% probability on Monday.
The U.S. dollar weakened against a basket of overseas currencies and the yield on the 10-year U.S. Treasury note was higher, with investors digesting recent economic data and making incremental adjustments to bets on post-election policy. The broad expectation is that no matter who occupies the White House come January 20, 2025, U.S. debt will continue to trend higher, with positive short-term implications but potential long-term consequences for growth.
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“Investors should look past the election and focus on the fundamentals of what drives markets,” according to James Demmert, chief investment officer of Main Street Research. “The economy and earnings continue to be better than expected, most stocks are reasonably priced and the Fed is in an accommodative mode and is expected to cut interest rates again this week.”
Indeed, as Demmert notes, “There is an excellent backdrop for stocks right now.”
And, as Kiplinger’s Dan Burrows writes, “Retail investors are better served by not participating in this arguably neurotic behavior” of trying to price and re-price various asset classes based on who wins today’s election. “That’s because,” Burrows concludes, “when it comes to long-term investing, it doesn’t matter which party holds the White House.”
On Election Day, the Nasdaq Composite surged 1.4% to close at 18,439 and is now within 1.5% of its October 29 all-time high. The S&P 500 was up 1.2% to 5,782, and the Dow Jones Industrial Average added 1% to 42,221.
We continue to track developments as they relate to your portfolio and your pocketbook on our live election blog.
Services soar as factories slump
The Institute for Supply Management (ISM) reported Tuesday morning that the ISM Services Purchasing Managers Index (PMI) expanded to 56.0 in October from 54.9 in September. It’s the highest reading for the ISM PMI since July 2022 and the fourth straight month of expansion. Economists were looking for the gauge to hit just 53.7 in October.
Services sectors, including retailers and restaurants, make up the majority of U.S. economic activity. The October expansion was driven by a rebound in the employment component of the index. The Employment Index rose for the third time in four months. At 53.0, the gauge moved firmly into expansion mode vs a sub-50.0 contraction reading in September.
“The development is quelling concerns about last Friday’s huge miss on nonfarm payrolls and sending yields north,” observes Interactive Brokers Senior Economist José Torres.
The data also highlight a growing gap between services and manufacturing. The ISM said last week that its Manufacturing PMI pulled back from 47.2 in September to 46.5 in October, its lowest reading in more than a year, as declines in current production and inventories offset a slight gain in new orders.
“Regardless of the outcome of today’s election, the next President will inherit an economy where service-sector activity remains firmly in expansion even as manufacturing struggles,” write Wells Fargo economists Tim Quinlan and Shannon Seery Grein in a note to clients.
The ISM prints are also a consideration for the Federal Reserve: “Policymakers are no doubt aware that the hurricanes that ravaged the southeastern United States are likely disrupting economic data as well,” Quinlan and Grein add. “The challenge now is to attempt to see through the volatility and storm-disruption. Whatever the temporary effects may be, the glaring difference between manufacturing and services complicates the Fed’s efforts to get inflation in check without disproportionate pain in the factory sector.”
The next Fed meeting concludes on Thursday afternoon with a policy statement followed by a press conference with Fed Chair Jerome Powell.
Palantir rises on AI demand
Palantir Technologies (PLTR) gained 23.5% to $51.15, its largest percentage increase since February 6 and a new all-time high. The rally was sparked by a beat-and-raise quarter from the mega-cap tech stock.
“We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down,” Palantir CEO Alex Karp said. “This is a U.S.-driven AI revolution that has taken full hold. The world will be divided between AI haves and AI have-nots. At Palantir, we plan to power the winners.”
Palantir reported 30% growth in revenue for the three months ended June 30 to $725.5 million, ahead of an average forecast of $705 million. Adjusted earnings per share (EPS) came in at 10 cents to beat analysts’ expectations by a penny.
Palantir now expects to post 2024 revenue of $2.805 billion to $2.809 billion, up from a prior range of $2.742 billion to $2.750 billion.
PLTR – which said revenue from U.S. government contracts was up 40% and now accounts for more than 44% of its total sales – was the best-performing stock in the S&P 500 on Election Day.
Palantir stock was recently added to the S&P 500, but analysts’ questions about valuation might only grow stronger based on recent price action.
Trump stock on the move
Trump Media & Technology Group (DJT) surged early and was up double-digits before sagging into close and ending down 0.4% on Tuesday after rising 12.4% on Monday, with a final set of polling data continuing to show another too-close-to-call presidential race.
DJT stock has traded erratically in recent months, as interest and anxiety around Election Day spark more volatility.
No analysts cover DJT. But, in a March 26 note, Interactive Brokers Chief Strategist Steve Sosnick wrote of “political motivations driving the stock” and observed “that the company’s most devoted investors viewed it as a call option on the MAGA movement.”
In August, Trump Media & Technology reported a net loss of $16.4 million and revenue of $837,000. Management noted it had $344 million in cash on its balance sheet and no debt.
