Wall Street’s pre-election jitters: Megacap earnings and data in focus

Wall Street’s about to be hit with a flood of uncertainty — just what every investor loves right before an election.

Next week, five of the “Magnificent Seven” mega-cap tech stocks (Alphabet, Microsoft, Meta Platforms, Amazon, and Apple) will report their latest earnings, with some data releases sprinkled in for good measure.

Alphabet takes the stage first on Tuesday, followed by Microsoft and Meta on Wednesday, and Amazon and Apple to finish on Thursday. On top of that, there’s data on jobs, inflation, and GDP waiting to stir the pot. 

No surprise the CBOE Volatility Index, Wall Street’s fear gauge, is rising. For context, the DOW and the S&P 500 just saw their longest six-week win streak since December, but they’re set to snap it now, even if they might still end the month in the green.

Bond yields jumped, with the 10-year U.S. Treasury yield cracking 4.25% before easing back a bit to 4.2%.

All eyes of the Mag Seven

Investors’ hopes are pinned on the “Magnificent Seven,” but excitement around these big names has definitely cooled off. They’re looking at about 18% year-over-year growth for the third quarter, which is way down from the 35% growth they saw in the last quarter.

And that doesn’t just kill the mood, it’s actually got some Wall Street pros worried. Goldman Sachs’ David Kostin thinks that the S&P 500’s average annual returns will drop to 3% over the next decade, down from 13% over the past ten years, thanks to the tech-heavy weighting of the index.

Not everyone’s in a doomsday mindset, though. The rest of the S&P 500, excluding these seven tech giants, is expected to barely post any growth — a pathetic 0.1% for the quarter, according to FactSet.

It’s clear this handful of stocks still carries the whole market on their backs, and Wall Street knows it. Any stumble from them could bring the whole thing crashing down.

NASDAQ 100 has been grinding near its all-time high recently, hanging on the performance of these tech stocks. But investors aren’t just sitting around waiting; they’re making moves, hedging positions, and sending a load of cash into funds for safety.

Bank of America reported the largest cash influx in four weeks, per EPFR Global data. Market players are getting ready for anything.

Data tsunami: Jobs, inflation, and GDP

Now let’s talk numbers. Wednesday is when we’ll get the third-quarter GDP data. Expectations are for a 2.1% rise, which is down from the previous 3%.

On Thursday, the core PCE (Personal Consumption Expenditures) index, the Fed’s favorite inflation gauge, is expected to show that inflation cooled a bit — to 2% from last month’s 2.2%. Friday caps it off with October’s jobs report, projected to show the economy added about 140,000 jobs.

More data will be dropping through the week: there’s JOLTS Job Openings and October Consumer Confidence on Tuesday, and pending home sales data midweek. Wall Street’s analysts are itching for a reason to go bullish, especially with the election stirring up a typical end-of-year rally.

Historically, stocks climb as the year closes, especially in election years. HSBC’s head of equity strategy, Nicole Inui, just upped her S&P 500 target to 5,900, citing solid economic growth and a “Goldilocks” scenario of growth and cooling inflation.

“The pieces are falling into place for a bull case scenario,” she said, pointing to data that could make or break the market narrative for bulls.

But let’s be real, optimism has limits. If any one of these data points doesn’t line up as expected, it could rattle things. We’re already seeing signs, with bond yields pushing up again.

The 10-year Treasury yield hit over 4.25% recently before settling, and the ICE BofA MOVE Index of bond volatility saw its biggest monthly rise since the pandemic began. Stocks felt it, with the S&P 500 shedding nearly 1% last week.

Bitcoin’s wild card role

Meanwhile, Bitcoin’s holding steady above $66,500, thanks to crypto bulls staying strong. Analysts at Kraken say that as long as Bitcoin keeps above this level, the bullish trend holds. It’s setting up for another showdown with the $73,679 all-time high it hit in March.

If it crosses that, the analysts think it could start the highly-anticipated new rally, leading to “further upside momentum.” Investors are keeping an eye on things like high mining costs, weak hashrate profitability, and the boatload of Bitcoin sitting on exchanges — all factors that could stall its movements.

And then of course, the U.S. election. Both presidential candidates have shared public support for blockchain and crypto in their own way. The market is expected to react strongly no matter who wins. But the reaction might not be good.

Investors are wary, even though Bitcoin now sits among the top 10 global assets by market cap, rubbing shoulders with giants like TSMC, Berkshire Hathaway, Tesla, and Walmart.

But some are still cautious, choosing steady returns from traditional assets and fixed-income yields of 4.7% over the volatility of Bitcoin.

“Bulls are firmly in control, and as long as BTC remains above the $66,500 level, the trend should remain constructive,” Kraken analysts wrote. For now, Bitcoin is secure, but if it fails to hold, we could see some wild swings.