Daily market snapshot

Published July 22, 2024
 Woman on couch looking at laptop

Monday, 7/22/2024 p.m.

  • Washington remains in focus as Biden drops re-election bid: On Sunday afternoon, President Joe Biden announced he will not seek reelection in November as the Democratic nominee, and he endorsed Vice President Kamala Harris to be the Democratic nominee, though others may enter the race. This latest twist in the political landscape potentially brings more uncertainty about the final outcome of the U.S. election. However, stocks took the news in stride, with the S&P 500 and Nasdaq both gaining over 1% while bond yields ticked modestly higher.* We'd view the positive response as a sign that markets likely don't expect any wholesale changes in policy from the upcoming Democratic nominee. On the other side of the aisle, Donald Trump remains the favorite to win the election according to PredictIt, but his odds are lower after the news. Over the past two weeks, part of the sizable outperformance of small-cap stocks has been credited to hopes of deregulation and more confidence around the start of the Fed rate-cutting cycle. The small-cap rally continued today, with the Russell 2000 Index gaining over 1.5%.* In our view, here are the key takeaways from the weekend developments:
    • The change in the Democratic nominee won't dramatically change the policy backdrop. From a market standpoint, the key issues at stake will likely remain taxes and tariffs. The Trump administration proposals point to lower taxes, deregulation and higher tariffs. While markets have welcomed the pro-growth stance, these policies could also pose inflationary risks down the road. On the Democratic side, we don't expect a meaningful deviation from current views on trade and taxes.
    • The procedure around the selection of the new nominee and headlines heading into the democratic convention can inject more short-term volatility. Historically, volatility tends to rise about two months before the election but subsides after the election.
    • The investment backdrop remains positive for markets, supported by rising corporate profits, continued economic expansion, and the potential for lower yields as the Fed potentially pivots to interest-rate cuts in the months ahead. We'd recommend investors use short-term pullbacks as an opportunity to add to quality investments in line with their long-term goals.
  • Fundamentals, not politics, remain in the driver's seat for markets: While political uncertainty can and does drive short-term bouts of market volatility, we'd remind investors that playing politics with your portfolio can be a risky strategy. For example, looking at the previous two administrations, Donald Trump has talked tough on relations with China and imposed tariffs on billions of dollars' worth of imported goods in 2018. While the Biden administration has kept many of the Trump administration tariffs in place, rhetoric has been softer toward China, and there has been a greater willingness to be collaborative with China as a trade partner. Based purely on rhetoric and headlines, it would be easy to assume Chinese stocks underperformed under the Trump administration and outperformed under Biden. However, the opposite is true. Under the Trump administration the MSCI China Index gained 114%, while under the Biden administration the MSCI China Index has declined by roughly 48%.* Over the long run, we believe fundamental forces, such as economic growth, interest rates and corporate earnings, are more powerful drivers of market performance. To that end, we believe conditions will remain favorable for U.S. equity markets in the months ahead, driven by ongoing economic growth, a Fed that is approaching interest-rate cuts, and healthy corporate profit growth.
  • Earnings take the spotlight: Speaking of fundamentals, markets will have a number of corporate earnings reports to digest, with roughly 30% of the S&P 500 set to report this week. Expectations are for the S&P 500 to grow earnings by roughly 10% year-over-year in the second quarter, backed by strong profit growth in the communication services, information technology, financials and health care sectors.* Looking ahead to the full year, expectations are for the S&P 500 to grow earnings by just shy of 12% in 2024, which, if achieved, would be the strongest growth rate since 2021.* Unlike 2023, where only a handful of sectors saw strong profit growth, 2024 is expected to see positive earnings growth across every sector except energy and materials.* Healthy profit growth across multiple sectors could lead to a broadening of leadership in the months ahead and help to extend the current bull market.
 Chart shows the average level of the VIX Volatility Index 6-months before and after election day since 1992
Source: Bloomberg, Edward Jones.

Investment Strategy

Source: *FactSet

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This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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