Record-breaking stock market performance during election season.
US stocks have soared to record highs this year, with the S&P 500 exceeding its own record an astonishing 31 times since January. This equates to a new record high approximately every four trading days.
Investors have disregarded high interest and inflation rates, a chaotic political and global environment, and overall economic instability to offer the most profitable start to an election year on record.
Current events: Presidential election years usually benefit stocks.
The S&P 500 alone has averaged a 7% return during presidential election years since 1952, according to LPL Financial. This increase spikes to 12.2% when limiting it to election years where the incumbent president is seeking re-election.
As of now, the index has already surpassed these average gains. The S&P 500 has gained 14.6% year-to-date — the best start to an election year on record, according to Goldman Sachs — and is up nearly 31% from its October 2023 low of 4,117 points.
So, what makes this election cycle different from the rest?
Gains tend to be higher when incumbent presidents seek re-election, often due to a yearning for stability. And this election is unique since 1892 as the nominees of both major parties have occupied the White House, according to Ed Clissold, chief US strategist at Ned Davis Research.
Having one incumbent running reduces uncertainty, but having two incumbents drastically lowers it. This could cause the typical year-end election relief rally to occur early, according to Clissold.
Cause for joy: Not only are stocks increasing, but their downward movements are rare.
It has been 333 days since the S&P 500 recorded a drop of 2% or more, which is the longest period since February 2018, according to Goldman Sachs' Scott Rubner. He remains optimistic about the latter half of the year — a good first half usually means a "very good" second half, he wrote.
"The powerful market rally continues, notable not only for its strength but also for its stability," wrote Nationwide's chief of investment research, Mark Hackett, in a note Friday. "There is no reason that the consistent upward trend cannot persist, particularly as we approach the tailwind from election seasonality."
Last week's rally was widespread, easing investors' concerns that recent gains have been concentrated in a few large companies like tech darling Nvidia, which has gained more than 155% so far this year.
The equal-weighted version of the S&P 500 rose 1.12%, and the small cap Russell 2000 gained 0.79% while the tech-heavy Nasdaq was flat on the week.
The sustained gains are prompting some analysts to raise their year-end targets for the S&P 500.
Scott Chronert, research head of US equity strategy at Citigroup, increased his year-end target to 5,600 from 5,100 last week. Analysts at Goldman Sachs, Barclays, Deutsche Bank, and UBS have also adjusted their expectations for the broad-based index higher.
However: Market volatility in an election year tends to increase in October, and there are still many months left in this cycle with potential surprises to come.
Thursday brings CNN's televised debate between President Joe Biden and former president Donald Trump. "There is plenty of room for major headlines and for the candidates to gain or lose momentum," wrote Deutsche Bank's Jim Reid.
There is also the possibility that investors become complacent and grow accustomed to the current bull market.
"The longer optimism remains high, the greater the risk that it turns into complacency and leaves the market vulnerable to the next negative news," said Clissold with Ned Davis Research.
"An autumn pullback fits well time-wise with potential downside earnings revisions, make-or-break decisions for the Fed, and election uncertainty. The risk is that one or more of those catalysts prove to be longer lasting, turning a pullback into something more," he said.
International perspective: The United States is not the only country with an upcoming election. France and the UK are both facing elections in the coming weeks. While opinion polls suggest the opposition centre-left Labour Party is set for a comfortable victory in the UK on July 4, the situation in France is uncertain, and markets have been affected.
French President Emmanuel Macron called a snap parliamentary election after his centrist Renaissance party suffered heavy losses to the far-right opposition in European elections.
The first round of the French election will take place on June 30, with a second round on July 7.
"Political uncertainty is a near-term headwind to both sentiment (reflected through financial markets) and, now, activity," wrote Katie Nixon, chief investment officer for Northern Trust Wealth Management, of the upcoming elections. "Until July, we can expect volatility in European equity and debt markets."
Alaska Airlines strikes preliminary labor deal with flight attendants
Alaska Airlines and its 7,000-member flight attendants union reached a tentative labor deal late Friday, culminating talks that lasted over a year and a half, as reported by my colleague Chris Isidore.
The deal's specifics have not been disclosed, though the union labels it a "record contract."
In April, the union unveiled plans for pay increases ranging between 43% to 56%, based on seniority, through 2026. These changes would also encompass back pay, dating back a year and a half, for work carried out under the previous contract.
February witnessed an extraordinary occurrence as flight attendants from Alaska, alongside American, United, and Southwest, organized coordinated protests calling for fresh contracts.
Since then, Southwest's flight attendants have reached an agreement, featuring an instant 22.3% wage hike as of May 1 and $364 million in retroactive wages.
As of now, American and United's flight attendants are still in negotiations. American flight attendants have requested exemption from restrictions in order to go on strike, but even if granted, a considerable cooling-off period of several months would pass before any strike could occur, according to the Railway Labor Act.
Apple grapples with a fresh challenge in China: ChatGPT's ban
Apple aims to leverage its upcoming AI features to boost iPhone sales, particularly in China, where demand has been waning.
However, there's a hitch, as my CNN colleague Samantha Murphy Kelly reported, ChatGPT — slated for integration into Siri — is forbidden in China.
During a presentation earlier this month, Apple demonstrated its self-developed technology named Apple Intelligence to empower groundbreaking AI features. They also announced a collaboration with OpenAI to utilize ChatGPT in a restricted capacity. (When Siri is activated and requires more assistance to answer a query, ChatGPT can intervene.)
This collaboration hinted at Apple's efforts to swiftly incorporate the latest technology, while tech competitors such as Microsoft, Google, Meta, and Samsung have already established their AI systems. A deal with OpenAI could help Apple catch up.
However, China is one of the first countries to regulate the generative AI technology used by these popular services. In August, the Cyberspace Administration of China, the country's chief internet regulator, introduced new rules for the industry, demanding companies to secure approval prior to deployment. So far, the organization has approved more than 100 AI models, all from domestic companies.
According to a report from the Wall Street Journal published on Thursday, Apple is actively searching for a Chinese AI company to collaborate with before the anticipated September launch of the iPhone.
Apple remained silent when approached for a comment.
The urgency to find a partner arises at a time when Apple's smartphone sales plummeted a staggering 10% during the first quarter of this year, according to market research firm IDC. This dip is primarily attributed to a significant decrease in iPhone sales in China. The company has been losing traction in China due to nationalism, economic troubles, and heightened competition. China is the company's second-largest market.
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Investors continue to demonstrate confidence in the business sector, disregarding high interest and inflation rates, a chaotic political environment, and overall economic instability to invest in stocks during this election season.
In light of the record-breaking performance of the S&P 500, businesses may see increased investment opportunities as capital flows into the market.
