Market Snapshot: U.S. stocks attempt 3-day winning streak with midterm elections under way

What’s driving markets

Stocks were striving to record a three-day winning streak. The S&P 500’s 2.3% gain over the previous couple of sessions was partly the result of buyers front-running a traditional “buy signal” event, the completion of the U.S. midterm elections, according to some analysts.

“U.S. equities began the week bouncing back, with the S&P 500 convincingly up ahead of the U.S. midterm elections on Tuesday, where a divided government in Washington is ostensibly bullish for equities,” said Stephen Innes, managing partner at SPI Asset Management.

“The rationale is pretty straightforward. Gridlock cross-checks each party’s ‘worst impulses’, and less activist fiscal policy is conducive to lower market volatility,” Innes added.

Crucial to determining that post-election scenario is the Federal Reserve’s need to keep tightening monetary policy to combat inflation running near 40-year highs. Consequently, for many investors it is Thursday’s consumer prices data and not politics that will determine the market’s trajectory going into the end of the year.

The message from the bond market in that regard is not particularly supportive of stocks. The monetary policy-sensitive 2-year Treasury yield
TMUBMUSD02Y,
4.692%
is holding above 4.7%, near its highest since 2007.

In addition, despite the S&P 500 having bounced 6.4% from its 2022 closing low in mid October, the bear market downtrend remains intact, warn some analysts.

“The [S&P 500’s] spike back above 3800 might have seemed positive to many investors after SPX successfully held 3700 last week, but technically last week’s deterioration remains a larger technical concern heading into mid-term Elections and CPI data,” wrote Mark Newton, head of technical strategy at Fundstrat.

“Downside risk levels are very well defined at 3700, and any break of this level turns the near-term quite bearish which could bring about a quick retest of October lows. Bottom line, market indices remain in a key window of volatility, and it’s essential for the Bulls that Technology starts to stabilize quickly along with rates showing more weakness,” Newton added.

Meanwhile, the third-quarter U.S. corporate earnings reporting season rumbles on, with Walt Disney Co.
DIS,
+0.37%
the highlight on Tuesday, when it reports after the close of trade.

Companies in focus

Lyft Inc.
LYFT,
-19.66%
shares fell 17.4% after ride-hailing company posted mixed third-quarter results Monday afternoon that showed underwhelming customer numbers even as Lyft benefitted from pricing trends.

Shares of Take-Two Interactive Software Inc.
TTWO,
-11.07%
dropped 15% after the videogame publisher cut its bookings outlook for the year by $400 million because of pipeline “shifts,” and weaker-than-expected mobile and in-game spending.