Yesterday, after the market closed, Microsoft (NASDAQ:MSFT) released its earnings report, showcasing impressive results that exceeded analysts' expectations across the board. As a result, the stock saw an uptick in after-hours trading.
In contrast, Meta (NASDAQ:META) met some expectations but disappointed in one of its divisions in terms of revenue and operating losses. The market reacted negatively due to the company’s vague revenue forecast, with the lower range falling below expectations. Additionally, Meta projected an increase in capital expenditures for 2025, leading to a roughly 3% drop in its stock in after-hours trading — a decline that, while not dramatic, still carries weight.
It’s important to note that Meta and Microsoft together influence the S&P 500 by about 9%. Now, Wall Street awaits the earnings reports of Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL), set to be released later this week.
At present, the market is expected to open slightly negative, though there’s hope that it may recover losses during the trading session. Even if Nvidia (NASDAQ:NVDA) opens in the red, there is an expectation that it will also rebound later in the day.
Additionally, yesterday’s U.S. GDP figure showed slower-than-expected growth, raising questions about a potential recession. However, the ADP report, a precursor to Friday’s jobs report, provided a sense of strong data, though its reliability is somewhat limited, as the market seeks reassurance.
Key Market Indicators Signal Growing Concerns
What looms in the background and raises concerns?
- U.S. Treasury yields
- Gold prices
- The U.S. fear index (VIX)
These three factors can be considered essential assets reflecting market anxieties. Although they don’t encompass all existing issues, a number of underlying factors still require resolution.
Regarding gold prices: A report from the World Gold Council released today indicates that gold demand in the last quarter exceeded $100 billion for the first time. Speculators, nations, and central banks are competing in the gold market, though central banks have recently slowed their purchases, primarily due to rising prices. Together, these indicators point to significant concerns as we look toward 2025.
The price of gold has been on a continuous rise, currently stabilizing around $2,750, with a potential target of $2,800 or even higher. Gold prices have been increasing for eight consecutive months, with no signs of reversal. I have previously discussed the reasons for this upward trend since the 2008 crisis, when traditional economic theories suggested that high interest rates would suppress gold prices.
Since gold does not yield interest, it typically serves as an attractive alternative when rates are low. However, despite rising rates, gold prices continue to climb, suggesting global concerns regarding economic and geopolitical stability.
The accumulation of gold, led by countries like China and Russia, indicates a readiness for uncertainty, sanctions, and geopolitical threats. While this does not necessarily signal imminent disaster, it highlights cautionary signs on the horizon.
U.S. Election Countdown: Market Focus Shifts Amid Macro Data and Earnings Season
With exactly one week until the U.S. elections, this is undoubtedly the most significant topic for me – and likely for the market as well. Neither tomorrow's quarterly GDP report, the PCE (Personal Consumption Expenditures) inflation measure favored by the Fed, nor Friday’s upcoming employment report hold the same weight. This rare convergence of macroeconomic data coincides with a busy earnings season, including reports from Google (NASDAQ:GOOGL), Meta, Microsoft, Amazon, and Apple. Yet, these releases, as impactful as they may be, may pale in comparison to the influence of the election results, which could overshadow immediate market moves and become impactful only in the aftermath.
As of now, Trump leads in the polls. Market direction can also be gauged through Bitcoin, which could enter a rally to the $90,000–$120,000 range (though not yet certain). Bitcoin, often considered a Trump-friendly asset, might serve as an indicator as the election approaches.
When examining the polls, it appears that Americans place the economy as their top priority, with Trump viewed as favorable for economic management due to his business background and assertive stance on reducing unnecessary foreign policy expenditures. However, there are contradictions in these perceptions: the bond market, for instance, does not show support for Trump, reflected in the high yields. It’s worth noting, however, that the bond market exhibits unusual behavior independently, similar to gold's performance.
Given the inflationary downturn, bond yields would typically be expected to decrease – yet that’s not the case. Additional paradoxes emerge, such as the recent drop in oil prices, which has not influenced bond yields as anticipated. Thus, today’s bond market performance isn’t necessarily a direct result of Trump’s influence. While Trump is perceived as inflationary due to his stance on increasing domestic spending, the market has displayed independent patterns for some time.
This ongoing paradox characterizes the American economy, a certain structure shaped by Fed policies over the years, one likely to face significant resolution in 2025.
Oil Prices Dip Amid Middle East Tensions, Key Economic Data on the Horizon
Today, oil prices dropped to around $68 per barrel. The official reason for this decline stems from Israel’s decision to avoid striking Tehran’s oil and nuclear facilities, easing geopolitical tensions in the Middle East and alleviating some pressure on the energy market.
However, it is important to remember that falling oil prices strain Iran’s economy, as the country sells over 90% of its oil output to China, totaling approximately $2 billion per month. Any attack on Iran’s oil infrastructure could pose a strategic risk for Israel.
In the short term, I estimate that oil prices will return to the $72 range, as the market will likely find reasons to support a price increase, despite reports of regional peace.
What to Watch This Week:
- Key earnings reports from major companies, including Apple and Amazon, are set for release.
- Central inflation reports in Europe and the U.S.
- The U.S. employment report due on Friday.
Recently, markets have priced in a “soft landing” scenario for the U.S. economy, in which inflation eases toward the Fed’s 2% target without a substantial hit to economic growth. This week, a series of economic data could test that possibility. Specifically, the combination of a central inflation report followed by employment data the next day could indicate whether a soft landing is indeed achievable.
For example, if inflation data meets expectations but employment data disappoints, this may highlight the cost of the Fed’s battle against inflation. However, it’s essential to consider that the upcoming employment report might be influenced by unique factors such as two hurricanes, strikes, and rolling holidays, so analysts may interpret the results with these in mind.
Despite the heavy flow of data releases this week, I anticipate no major market drama – the primary reason being the U.S. elections, which are just around the corner and are already shaping the general market sentiment.