Wall Street sees election as catalyst for stock rally
A growing number of Wall Street strategists are predicting that a decision in the US presidential election will set the stage for stocks to rally into the end of 2024, building on a 21% gain this year for the S&P 500 Index.
Morgan Stanley’s Mike Wilson and JPMorgan Chase & Co.’s Dubravko Lakos-Bujas are among market watchers who said this week that the stock benchmark is poised to swing higher once a victor is declared. Meanwhile, Jefferies LLC strategists say equities weakness in the week before the vote has typically been a good omen for performance in the subsequent month, making last week’s slump a potentially bullish signal.
Of course, it’s anyone’s guess how long it will take to get a clear result after the vote, for both the presidency and the makeup of Congress.
Vice President Kamala Harris and former President Donald Trump have been running neck-and-neck in the polls, which has helped curb risk appetite over the past few weeks. The US equities benchmark has held below last month’s record high, which it reached on momentum spurred by Federal Reserve interest-rate cuts, a resilient economy and the artificial-intelligence boom.
While US equities are coming off their first monthly loss since April, the drop of less than 3% was more benign than the historical pattern of 4%-5% selloffs on average in October going into close presidential races, according to Deutsche Bank AG. Meanwhile, inflows to US stocks this year have been robust — roughly $500 billion — a sharp contrast from prior years when they kicked in only after the election, per data from the bank.
The call for a year-end rally has history on its side, as it tends to be a seasonally strong period for US stocks.
To Morgan Stanley’s Wilson, the election could serve as a “clearing event” that kicks off a year-end rush into stocks. He sees scope for the S&P 500 to reach 6,100 in that period, a roughly 5.5% gain from Tuesday’s close of 5,782.76.
