The first full week of November could be a pivotal one for the markets.
The U.S. Presidential Election will likely be the dominant news story for most of the week. With the end of the year just around the corner, investors will be looking to the election results to get a sense of the fiscal cliff's resolution -- assuming a resolution is possible.
If President Obama is re-elected, it is possible that 2013 could bring aggressive tax hikes on dividends and higher wage earners. In that case, traders might sell stocks going into the final few weeks of the year. A study from Barclays released earlier in the week indicated that many investors think a second Obama term would be worse for stocks than a Romney victory.
Of course, Obama might be more likely to keep the Federal Reserve staffed with “doves” -- economists who are more partial to keeping unemployment low rather than focusing on limiting inflation. In that case, a victory for Obama might be seen as guarantee that “easy money” policies will remain in place for quite some time -- a positive for stocks.
For a Romney victory, more or less the opposite is true. Although Romney would not assume the Presidency until January -- after the deadline of the fiscal cliff -- it may be likely that his administration would work to keep taxes low on things like capital gains. Traders may also view a Romney administration as one being more favorable to business, thereby supporting equity valuations.
But Romney might pressure the Fed to limit or even wind-down its quantitative easing policies. That could hurt stocks, which have run up over the last four years as the Fed has undertaken multiple rounds of asset purchases.
Beyond the election, earnings season continues for another week. Notable companies expected to report include Walt Disney Co. (DIS), J.C. Penney (JCP) and QUALCOMM (QCOM).
Analysts at Citigroup were positive on J.C. Penney. In a note released last week, Citigroup commented on a study conducted on the retailer's ongoing transformation, noting: "The study indicated that JCP's transformation strategy may be gaining traction with consumers. It found that consumers are responding well to JCP's new product assortment, with increased conversion levels since July."
Likewise, Bank of America released a favorable note on Disney following its Tuesday announcement that it would acquire Lucasfilm. Bank of America noted, "We continue to view the DIS story favorably, as accelerating Parks fundamentals, the conclusion of a major reinvestment cycle, an increasingly positive Studio outlook, steady growth at Networks and improving profitability at Interactive all offer opportunity for upward estimate revisions, in our view."
Additionally, later in the week, the European Central Bank and the Bank of England will meet to decide on interest rate policy. Those decisions could affect European stocks, and by extension, U.S. markets.
Monday
- Earnings from: Time Warner (TWC), Tesla Motors (TSLA), Humana (HUM), Express Scripts (ESRX), and Walter Energy (WLT)
- ISM Non-Manufacturing Index (estimated at 54.5).
- Earnings from: AOL (AOL), CVS (CVS), DirecTV (DTV), Fossil (FOSL), News Corp (NWSA) and Rackspace (RAX).
- U.K. Industrial Production (year over year estimated at -1.6 percent), German Factory Orders (estimated at -0.5 percent).
- U.S. Presidential Election
- Earnings from: Leap Wireless (LEAP), Tenet Healthcare (THC),CBS (CBS), QUALCOMM (QCOM), Activision Blizzard (ATVI) and SodaStream (SODA).
- Eurozone Retail Sales (estimated at -0.1 percent), German Industrial Production (estimated at -0.5 percent), Australian Unemployment Rate (estimated at 5.5 percent).
- Earnings from: Dean Foods (DF), Duke Energy (DUK), Kohl's (KSS), Groupon (GRPN), Walt Disney (DIS) and NVIDIA (NVDA).
- U.K. Interest Rate Decision (estimated at 0.5 percent), Eurozone Interest Rate Decision (estimated at 0.75 percent), Canadian Trade Balance (estimated at CAD 2.0 billion), Chinese CPI (month over month estimated at 0.1 percent).
- Earnings from: J.C. Penney (JCP) and Apollo Global Management ( APO).
- Chinese Retail Sales (estimated at 14.1%), Chinese Industrial Production (estimated at 9.4 percent), German CPI (year over year estimated at 2 percent).