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The stock market hasn't looked this good in an election year since 1976

Investors continue to cheer upbeat seasonality, AI, and looming Fed rate cuts

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Good morning! This Friday brings May’s personal income and outlays data, which includes an update on the Personal Consumption Expenditures (PCE) index — otherwise known as the Fed’s preferred inflation gauge.

Analysts see the core figure rising 0.1% on the month and 2.6% annually, slower than in April. 

One more thing to watch: FedEx, often seen as an economic bellwether, reports earnings Tuesday. 

Best election-year market in decades

Thursday brings the first presidential debate of the year between Joe Biden and Donald Trump. 

The candidates are set to swap barbs and stoke drama in the widely-watched event — but nothing they say is likely to derail the US stock market’s blistering rally

The S&P 500 is on track for its strongest first-half performance in an election year since 1976, according to data from Ned Davis Research.

Despite the Federal Reserve holding interest rates above 5 percent, the benchmark stock index has climbed 15.2% year-to-date.

Wall Street firms have only turned more optimistic the last several months. 

Investors continue to cheer AI names, cooling economic data and the prospect of a rate cut. Throw in seasonality — the S&P 500 is up more than 80 percent of the time in election years — and there’s little indication the momentum will stall before November. 

“The rally has left valuations stretched, sentiment optimistic, and the market overbought,” said NDR chief US strategist Ed Clissold. 

It’s true that a correction is always a possibility during cycles of exuberance, but the firm maintains an “overweight” position for equities going into the election.

Any pullbacks, Clissold noted, will be seasonal rather than the start of a bear market.

To be sure, recent elections in Europe and emerging nations have served as a reminder that markets can swing on results at the ballot box.

That said, the majority of US strategists have yet to turn defensive. Whether this momentum carries into 2025 is anyone’s guess. 

The investment team at UBS shared a report with Opening Bell Daily that broke down their stock market outlook for potential political outcomes:

  • If Democrats sweep the Oval Office, House, and Senate, stocks could fall due to the potential for higher corporate tax rates and regulatory oversight

  • If Republicans sweep, stocks could rise on account of less regulation, the potential for more M&A, and lower corporate taxes

In either scenario, choppier trading is coming at the tail end of this year, according to UBS.

“The US consumer discretionary and renewables sectors could be vulnerable in a scenario of a Republican sweep of both the White House and Congress,” the strategists said.

“At the same time, we think financials would stand to benefit in that scenario.”

Morgan Stanley’s top equity strategist Mike Wilson, for one, remains focused on fundamentals. He’s watching how fast valuations fall compared to earnings growth. 

This trend has already kicked off, he said, as illustrated by the rally’s narrowing breadth

“The bottom line is that the ongoing policy mix of heavy fiscal spending and tight interest rate policy is crowding out many companies and consumers in [a] way that is unsustainable, in our view,” Wilson wrote in a note to clients on Sunday.

“Investors have recognized this outcome by bidding up the few stocks of the companies that are doing well in this environment.”

What’s your forecast for the stock market if Trump wins, and how is it different than if Biden wins? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

*Data as of Sunday, 9 p.m. ET


🇯🇵Investors are turning cautious on Japan. The nations’ record stock rally earlier this year has officially cooled off. Foreign traders were net sellers of shares for the fourth consecutive week as the Bank of Japan’s policy outlook remains up in the air. The Nikkei 225 is down 5.6% since hitting an all-time high in late March. (Bloomberg)

💵The US dollar is showing unusual strength. As a result, emerging market currencies are on track for their worst start to a year since 2020. JPMorgan’s foreign exchange index for emerging markets is down 4.4% in the last six months — more than twice the drop seen in the same stretch over the last three years. (FT)

📈Nvidia is the most expensive stock in the S&P 500. It’s shares are trading at about 23 times the company’s projected sales for the next 12 months. Investors have piled in as demand for Nvidia’s chips have gone ballistic. That, however, has also made forecasting quarterly revenue an impossible task for analysts. (Bloomberg)


  • The rise of Chinese electric vehicles is dividing the US and Europe (WSJ)

  • Morgan Stanley faces a lawsuit for allegedly super-low interest rates on client cash (Barron’s)

  • Demand for corporate bonds is surging, with credit funds notching 30 weeks in a row of net inflows (FT)

  • Gen Z pays more for housing than millennials did at the same age (Business Insider)

  • Bond traders are now betting on a higher long-term funds rate than the Federal Reserve (Bloomberg)

Last thing:

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