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Wall Street Sees Gains Ahead of Megacap Earnings and Presidential Election

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Wall Street closed on a positive note on Monday, buoyed by anticipation of key earnings releases from major tech companies and the nearing U.S. presidential election on November 5. Additionally, market sentiment improved as recent developments in the Middle East did not affect global energy supplies. Although Israel responded to an Iranian missile strike earlier this month, the targeted sites focused on missile facilities around Tehran rather than on energy infrastructure, alleviating immediate supply concerns.

Tech Stocks Drive Market Gains

The “Magnificent Seven” group of megacap tech stocks, which have been pivotal to Wall Street’s recent highs, saw modest gains as Alphabet, Meta, and Apple rose ahead of their earnings reports. Nvidia’s recent ascent as the world’s most valuable company added to the focus, with investors closely watching for AI-related spending trends in the upcoming earnings.

In total, 169 S&P 500 companies are expected to report earnings this week, with guidance on capital expenditures anticipated to provide insights into future tech investments. Microsoft and Amazon are also scheduled to release earnings, adding to the week’s tech-heavy reporting.

Market Performance by the Numbers

  • S&P 500: Up 15.4 points (0.27%) to 5,823.52
  • Nasdaq Composite: Up 48.58 points (0.26%) to 18,567.19
  • Dow Jones Industrial Average: Up 273.17 points (0.65%) to 42,387.57
  • Russell 2000: Outperformed major indexes with a 1.63% jump, showing strength in small-cap stocks, which often lead during economic rebounds.

Paul Christopher, head of Global Investment Strategy at Wells Fargo, noted that gains in small-cap stocks may indicate market optimism for a “soft landing,” or recovery with minimal recessionary impact. He also observed potential investor shifts in response to expectations surrounding a possible Trump administration return.

Sectoral Performance and Corporate Highlights

  • Energy Sector: Fell 0.65%, as crude prices dropped 5% amid eased supply worries.
  • Financial Sector: Led sectoral gains, benefiting from stable economic indicators.

Other significant moves included Boeing, whose shares fell 2.8% after the company announced a stock offering worth up to $22 billion. This move aims to bolster Boeing’s finances as it faces financial pressure from an ongoing worker strike. Meanwhile, industrial giant 3M saw a 4.4% increase after JP Morgan raised its price target on the company’s stock, positively impacting the Dow.

Economic Data and Election Impact

Investors are also awaiting economic data this week, particularly the Personal Consumption Expenditure Price Index due on Thursday, a key inflation gauge for Federal Reserve policy assessment. The broader market is also factoring in election dynamics, with some anticipation of a second term for former President Donald Trump, though the race remains close.

Advancing issues led decliners on the NYSE by a ratio of 1.88-to-1, reflecting a generally optimistic market sentiment. The S&P 500 posted 15 new 52-week highs, while the Nasdaq Composite recorded 101 new highs, signaling investor confidence despite economic and geopolitical uncertainties.

 

Dow and S&P 500 Reach New Record Highs, Driven by Netflix Earnings and Tech Stocks Surge

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On Friday, both the Dow Jones Industrial Average and the S&P 500 closed at new record highs, bolstered by impressive earnings from Netflix and a rally in technology stocks. The Nasdaq also ended the day in positive territory, contributing to a sixth consecutive weekly gain for all three major Wall Street indices—their longest winning streaks since late 2023.

For the week, the S&P 500 advanced 0.9%, the Nasdaq Composite added 0.8%, and the Dow rose by 1%. A significant driver of Friday’s performance was Netflix, which surged 11.1% to a record closing high after exceeding Wall Street’s expectations for subscriber growth and projecting continued expansion through the end of the year.

Tech stocks, particularly the “Magnificent Seven,” continued to push the broader market upward. Apple saw a 1.2% increase, spurred by robust iPhone sales in China, while Nvidia climbed 0.8% following an optimistic price target increase from BofA Global Research. The rise in Netflix shares also helped lift the communication services sector, which gained 0.9%, the top performer among the 11 S&P 500 sectors. The information technology sector saw a 0.5% increase.

David Waddell, CEO of Waddell & Associates, summed up the market sentiment, describing it as a “what’s not to like” scenario, pointing to favorable economic data, lower inflation, and positive corporate earnings.

At the close of the session, the S&P 500 rose 23.20 points (0.40%) to 5,864.67, while the Nasdaq gained 115.94 points (0.63%) to end at 18,489.55. The Dow closed at 43,275.91, rising 36.86 points (0.09%). This marked the fifth record closing for the Dow in the past six sessions, though gains were tempered by a 3.1% decline in American Express, which missed quarterly revenue expectations.

Financial companies have largely enjoyed a successful earnings season, though the S&P Banks index slipped 0.1%, breaking a five-day winning streak. Despite this, positive earnings reports and solid economic data have continued to sustain the upward momentum in the market.

However, analysts have cautioned that stretched valuations could leave stocks vulnerable to a pullback, particularly with the S&P 500 trading at nearly 22 times forward earnings. The looming Nov. 5 U.S. presidential election could also introduce volatility. Despite these concerns, David Waddell expressed confidence that strong earnings could override any political uncertainty or valuation concerns.

“We’ve reached the limit of gains from multiple expansion, so the future trajectory depends on earnings. We are priced for very strong earnings, and any disappointment could cause market disruptions. However, barring a recession, the bull market remains intact,” Waddell stated.

Investors have also shown increased interest in small-cap stocks, with both the Russell 2000 and S&P Small Cap 600 outperforming the larger indices for the week, though both were slightly down on Friday.

The energy sector was the only S&P sector to decline on Friday, dropping 0.4%. Lower oil prices and a 4.7% drop in SLB, which missed earnings expectations, dragged down other oilfield service providers like Baker Hughes (-1.3%) and Halliburton (-2.1%). The energy sector ended the week as the worst performer, losing 2.6%, weighed down by a 7% decline in U.S. crude prices due to concerns over Chinese demand and the conflict in the Middle East.

In the healthcare sector, CVS Health dropped 5.2% after announcing the replacement of CEO Karen Lynch with veteran David Joyner and withdrawing its 2024 profit forecast. This news also impacted other health insurers, with Cigna and Elevance Health both seeing declines, the latter closing at its lowest level in nearly 15 months.

Trading volume on U.S. exchanges totaled 10.62 billion shares, below the 20-day average of 11.56 billion shares.

 

Tesla, Nvidia Lead Nasdaq Surge After Fed Rate Cut

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The Nasdaq experienced one of its strongest rallies of 2024 on Thursday, surging 2.5% as investors flocked to tech stocks following the Federal Reserve’s first interest rate cut since 2020. Tesla and Nvidia led the charge, with Tesla shares climbing 7.4% and Nvidia jumping 4%, boosting the tech-heavy index to its fourth-largest gain this year. The biggest surge occurred on February 22, when the Nasdaq rose by 3%.

Tech stocks tend to benefit from lower interest rates due to reduced borrowing costs and more favorable investment conditions. The Fed’s half-point rate cut, along with indications of further reductions by the year’s end, created a bullish environment for tech stocks. The central bank’s “dot plot” suggests another 50 basis points of cuts before 2025, potentially reducing rates by 2 percentage points overall.

Thursday’s rally lifted the Nasdaq to 18,013.98, its highest point since mid-July and only 3.5% below the 2024 peak of 18,647.45, reached on July 10. Nvidia, a key player in the artificial intelligence (AI) revolution, closed at $117.87, up 4%. The company’s processors are fueling the rise of generative AI and tools like OpenAI’s ChatGPT. Nvidia’s stock is up around 138% this year, although still 13% below its all-time high from June.

Nvidia’s impressive growth is largely driven by major customers such as Microsoft, Meta, Alphabet, Amazon, Oracle, and OpenAI, which use its technology to develop large language models and manage substantial AI workloads. However, lower interest rates are expected to further bolster Nvidia’s stock performance.

Other chipmakers saw gains as well, with Advanced Micro Devices (AMD) up 5.7% and Broadcom rising 3.9%. While AMD is still trailing Nvidia in the AI race, its CEO, Lisa Su, emphasized that AI is a long-term game. Speaking with CNBC’s Jim Cramer, Su pointed out that the widespread adoption of AI is still in its early stages, and its impact will be seen in fields like education and healthcare over time. “We all use it, and we’re all learning,” she said.

Tesla was the standout among the tech megacap companies, posting a 7.4% gain on Thursday. Despite this jump, the electric vehicle maker has struggled in 2024, with its stock down nearly 2% for the year. However, Tesla is up 72% from its lowest point in April. Other tech giants, including Apple and Meta, also saw strong performances, both closing with nearly 4% gains.