With the Federal Reserve's announcement last week of its first interest rate cut since 2020, much of the uncertainty for U.S. stocks has been removed - at least in the short term. And the market's eyes are starting to turn more to the next big story: the U.S. election.
There are only six weeks left before the November 5 US election.
Eastern time on Monday, Bank of America released a report, based on option prices from now to the day after the election plotted the S&P 500 index daily implied movement, so as to calculate the U.S. stock market in the next six weeks several important trading days.
November 6: The day after the US election
November 6, the day after the November 5 election, is usually the time when most of the preliminary election results are released, and it is also the most important day for US stocks, when the results of the election will have a huge impact on the US stock market.
Bank of America expects the S&P 500 to move 2.5% in either direction on Nov. 6.
It will be a significant day for investors because, assuming the election results are in by then, markets will begin to react based on the policies the winner of the election is likely to adopt over the next four years of his or her term.
The day after the last presidential election, the stock market experienced a similarly sized swing: The S&P 500 rose 2.2 percent on Nov. 4, 2020.
October 4 and November 1: Non-farm reports are released
Investors will be paying close attention to the September and October non-farm payrolls reports due on October 4 and November 1, respectively. The options market expects the S&P 500 to move more than 1 per cent in either direction on both days.
Bank of America expects a strong nonfarm payrolls report could drive stock prices higher.
"We believe good news is good news for equities, and the positive surprises in these two numbers should be a positive factor for equities," Bank of America said.
Week of October 21: Big earnings week
The week of Oct. 21 is the most important of the third earnings season for the U.S. stock market, with many of the "Big Seven" companies expected to report during the week. This date represents the estimated day some of the mega-cap tech companies will announce third-quarter earnings results.
Options prices suggest a 1 percent implied move in the S&P 500 for the week.
"The important third-quarter earnings week (Oct. 21-25) should also be a big catalyst for the market," Bank of America said, adding that investors will be looking for progress in translating AI technology into earnings prospects from these big tech earnings reports.
October 10: CPI data for September
As can be seen from the Fed's September statement, the FOMC has gradually shifted its focus from inflation to the labor market, which means that the September CPI data, while still important, may have less impact on the stock market than the non-farm payrolls data mentioned earlier.
Options pricing implies a daily move of just under 1 percent for the S&P 500 when September CPI data is released on Oct. 10.
"Before the first rate cut, the inflation data is the most important data to watch. But now that the Fed has started its rate-cutting cycle, we think labor market data (such as nonfarm payrolls) will be more of a concern than inflation, "Bank of America said.
