While market volatility is likely to persist in the run-up to U.S. midterm elections on Tuesday, stocks are seen coming out stronger should Republicans win a majority in at least one chamber of Congress, according to Morgan Stanley's U.S. equity strategist Mike Wilson.
With Republicans seen limiting fiscal expenditure and budget deficits, the bear market rally could continue for longer than expected should markets be able to survive the October inflation data due on Thursday as well.
Polls and betting markets and analysts see a split government - with the GOP winning the House of Representatives and possibly the Senate - as the likely outcome possibly hindering Democratic President Joe Biden's agenda.
But asking investors to cut through all the noise was Charles Schwab's UK managing director, Richard Flynn.
"For investors, more often than not, it is beneficial to consider macro conditions and their ability to hold more influence over the market, as opposed to specific legislation or policy," he said.
"The most important messages from the third-quarter earnings season are weakening demand, high production costs including labour, the effects of the strong U.S. dollar and the impact of the Fed's aggressive rate hiking cycle."
(Susan Mathew)
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NASDAQ COMPOSITE: BUDDING BULLISH TURN?
Last week, the Nasdaq Composite IXIC flirted with its bear-market lows. In fact, on Thursday, it ended down 35.6% from its Nov. 19, 2021 record finish.
However, one measure of internal strength, the Nasdaq New High/New Low (NH/NL) index, on a monthly basis, is suggesting some improvement under the surface:
The NH/NL index is on a record monthly losing streak. It has now fallen 20-straight months. Its previous record-losing streak was a 14-month run of losses in 2007-2008.
With the current decline, it ended October at 14.5%, or its lowest level since a 10.3% reading in March 2009. That reading marked its record low, and coincided with the end of what was a 54%-Nasdaq collapse on a closing basis from what was then its October-2007 record high.
Looking at this measure's behavior over time, periods of divergence have warned of the risk of a major top. For example, most recently, this measure peaked in February 2021 at 83.5%. However, it then eroded to 62.9% by the end of November 2021, the month of the Nasdaq's record high.
Admittedly, dealing with lows can be somewhat trickier. However, the measure has tended more toward V-bottoms, and has not shown a tendency to flat line. That said, it could always break 10.3%, and fall closer to zero, amid a much greater Nasdaq collapse.
Of note, however, so far in November, the measure is ticking up. It ended Friday at 16.2%, and its one-month rate-of-change is now its most positive since January 2021.
Admittedly, the new month has just kicked off, but traders will be watching to see if this building internal strength can persist.
Based on its history, slicing up through the descending 10-month moving average, now at 25.2%, would add credence to the turn, and could potentially underpin a multi-month IXIC consolidation phase, or a major advance.
Meanwhile, the NH/NL index turn is developing as the Nasdaq flirts with the 61.8% Fibonacci retracement of its March 2020-November 2021 advance at 10,291.
(Terence Gabriel)
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