Earnings season may be only half over, but the focus on profits should subside next week as investors turn their attention to the coming election and yesterday’s jobs report, the last major data release before the November 6 contest.
More bellwether companies are scheduled to report results in what will be another ‘peak week’ of the earnings season. Such a flurry of numbers normally holds Wall Street’s attention and can lead to market swings. But volume and volatility may be slight next week, with market participants opting to remain on the sidelines ahead of the jobs data and the election.
The US government's October jobs report will give a snapshot of the current labor market. It could also give a bit of a lift to President Barack Obama, should it come out better than anticipated, or help Republican candidate Mitt Romney - if it is worse than forecast.
The Standard & Poor’s 500 Index fell 1.5 per cent this week, largely because of a spate of earnings disappointments. The Dow Jones industrial average slid 1.8 per cent this week, and the Nasdaq composite index dropped 0.6 per cent.
What’s notable, however, is that rebounds have been brief and quick to attract sellers.
Some investors cited the approaching election as a barrier to committing new capital to the market.
“Not many people have the stomach to plop down their bets when polling is so close,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management. “For the most part, investors will wait and see what happens.”
Miller, who helps oversee more than $50 billion in assets, said the trend of caution would be especially pronounced in the health care, financial and energy sectors - three areas that may face different regulatory outlooks, depending on the election's outcome.
“These are the ones really in play,” he said.
Expectations for the next nonfarm payrolls report, set for release yesterday, are by no means certain, either. Analysts expect 124,000 jobs were added in October - up 10,000 from September. However, the unemployment rate is also seen ticking higher - to 7.9 per cent from 7.8 per cent. A payroll surprise in either direction could further cloud expectations for the election's outcome.
“A big change in payrolls could cause some uncertainty over the winner,” said Jerry Harris, president of asset management at Sterne Agee, in Birmingham, Alabama. “I don’t expect a big surprise, but while the S&P doesn’t seem especially vulnerable at these levels, I don’t think it is in a hurry to go up, either.”