The Best Week for the S&P 500 in Over a Year

We often make a point of pointing out how ordinary politics has very little influence over stock prices. But we do note there’s a specific exception to that general rule: when changes in tax rates are on the line, politics can indeed influence stock prices.

That observation was driven home once again for the U.S. stock market with the outcome of the 2024 elections. A sweep by former President Donald Trump and the Republican party, which won the trifecta of the White House, the Senate, and the House of Representatives, has affected the market because the victories make it very likely the corporate and personal income tax rate reductions of the Tax Cuts and Jobs Act of 2017 will be extended. Had the current Vice President Kamala Harris won, those many of those tax cuts would have been allowed to expire after 2025.

With that being the case, the election had a notable impact on the expectations for the future profitability of many of the publicly traded companies of the S&P 500. With the Republican sweep, the risk of increases in the corporate income taxes they pay has been largely avoided, which sent stock prices off to what even the New York Times described as its “best week in over a year“.

For the S&P 500 (Index: SPX), that meant a 4.6% increase to close out the election week’s trading at 5,994.37. The latest update of the alternative futures chart shows the trajectory of the index has moved beyond the redzone forecast range, with the level of stock prices being consistent with investors focusing their forward-looking attention on the first quarter of 2025.

The election outcome had one other main impact on future expectations. After the Fed’s quarter point rate cut on 7 November 2024, the CME Group’s FedWatch Tool anticipates another 0.25% rate cut on 18 December 2024. And then another one 12 weeks later, followed by a final one 18 weeks after that. The CME FedWatch tool now sees the Federal Funds Rate bottoming at a target range of 3.75-4.00%, a half point higher than what it projected before the election.

That’s an indication of how much the outlook for the U.S. economy improved over the previous week. The FedWatch tool is signaling that the economy will be stronger and won’t require the Fed to cut interest rate cuts as much as had been projected.

Those were perhaps the biggest news stories of the week that was, but other stuff happened too! Here’s our summary of the week’s market-moving headlines:

Monday, 4 November 2024

• Signs and portents for the U.S. economy:

• Oil gains 3% after OPEC+ delays output hike, US election in focus
• US factory orders fall a second straight month in September

Eurozone manufacturing less bad than expected, trouble still developing:

• Euro zone manufacturing slump shows signs of stabilising in October, PMIs show
• German companies’ hiring plans drop to four-year low, Ifo finds

Dow, S&P, and Nasdaq ended lower as the election and the latest FOMC rate decision looms

Tuesday, 5 November 2024

• Signs and portents for the U.S. economy:

• Oil prices edge up on Gulf of Mexico storm ahead of US election results
• US service sector activity accelerates to more than 2-year high
• Walmart, other US retailers import fewer Christmas goods ahead of tepid holiday season

Stimulus getting some traction in China:

• China’s services activity picks up as conditions improve, Caixin PMI shows

ECB minions / Bigger trouble developing in Eurozone:

• European companies cut jobs as economy sputters

Dow, S&P, Nasdaq end in rally mode as world awaits U.S. presidential election results

Wednesday, 6 November 2024

• Signs and portents for the U.S. economy:

• US suppliers, importers prepare for promised Trump tariffs
• Hey stupid, it wasn’t just the economy. It was inflation
• Oil falls as US dollar surges, investors take stock of Trump victory

Fed minions to perhaps deliver fewer rate cuts:

• US yields surge as Trump victory accelerates bond sell-off

• Trump’s election victory puts Fed on path for fewer rate cuts

Bigger trouble, some growth signs developing in China:

• Why Trump tariffs pose a bigger threat to China’s economy this time
• China’s cheap Iranian oil supply at risk from tighter Trump sanctions
• China’s export growth likely picked up speed in Oct on better weather, discounts — Reuters poll

• China’s exports soar past forecast as factories front-run Trump tariff threat

BOJ minions looked beyond current signs of growth to justify keeping interest rates low, excited to get bad news on Japan economy:

• BOJ saw positive economic signs even as it signaled pause, Sept minutes show
• Japan service activity shrinks on softer sales, confidence slips further, PMI shows
• Japan inflation-adjusted wages slip in Sept as price rises offset pay growth

ECB minions worried about new tariffs following Trump victory:

• New trade tariffs could lead to vicious circle of trade war, ECB warns

ECB minions appear to be on board with EU minions using rules and regulations rather than tariffs to keep Chinese electric vehicles out of Eurozone:

• China’s messy EV dispute with Europe keeps trade tensions in check
• China EV price deal needs be as effective as tariffs, says EU official
• China to file lawsuit with WTO against EU’s final EV ruling, commerce ministry says

Wall Street rallies to record high as Trump returns as US president

• Wall Street girds for Trump 2.0: Tariffs, tax cuts and volatility

Thursday, 7 November 2024

• Signs and portents for the U.S. economy:

• US 30-year fixed-rate mortgage rise to four-month high of 6.79%
• Oil rises 1% as investors digest US election fallout
• US soybean trade with China already strained before Trump’s return

Federal Reserve cuts policy rate by 25 bps, with risks to dual mandate in balance

• Fed Cuts Rates By 25bps As Expected, Removes ‘Dovish’ Inflation Language
• Fed’s Powell flags careful, patient approach after rate cut

• Fed’s Powell says he will not quit even if asked by Trump

US rate futures price in more Fed easing in December and 2025

Other central banks also cut interest rates:

• Bank of England cuts rates but sees higher inflation after Reeves’s budget

• Bank of England policymakers speak after cutting rates

Swedish Riksbank makes half point cut and sees more, but uncertainty high

BOJ minions get reason to keep Japan’s interest rates lower for longer:

• Japan household spending falls for second month in test for BOJ policy

Bigger trouble developing in Eurozone, ECB minions worry about shrinkage:

• German exports and industrial output fall more than expected

• Germany government collapse: pressure mounts on Scholz to trigger election soon

European economy would suffer from Trump tariffs, ECB’s Stournaras says

• Euro zone firms see continued margin pressures, ECB survey shows

ECB’s reduced market footprint showing effects, Schnabel says

Nasdaq, S&P, finish at record highs after Fed lowers interest rates further; Dow slips

Friday, 8 November 2024

• Signs and portents for the U.S. economy:

• Oil prices fall more than 1% as Hurricane Rafael risk recedes

China fears of U.S. trade actions grow:

• China wields weak hand in Trump’s Trade War II

• China steelmakers gird for indirect Trump tariffs hit
• Ready or not? How China scrambled to counter the second Trump shock

China’s cabinet approves measures to boost trade growth

Disappointing stimulus developing in China:

• China unveils $1.4 trillion local debt package but no direct stimulus

• China’s latest stimulus falls short of expectations
• Analysts react to China raising local government debt ceilings

Dow hits 44K, S&P crosses 6,000 for the first time after packed U.S. election, Fed week

• Trump election win propels S&P to historic 6,000 milestone, best week in over a year

• Stock Market Rallies to Its Best Week in Over a Year

S&P 500 cracks 6,000 mark as Trump win, easing Fed rally continues

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 increased to +2.5% from the previous week’s forecast of +2.3% growth.

Image credit: Stable Diffusion DreamStudio Beta. Prompt: “An editorial cartoon featuring a Wall Street bull who is celebrating the best week in the U.S. stock market in over a year.”