September Jobs Data, Elections, and the Chinese Stock Market Rally

Week in Review

Stocks surged to new record highs last week, buoyed by optimism stemming from the Federal Reserve's recent rate cut, continued enthusiasm for AI, and indications of broadening leadership within the bull market. So far, the markets have shown little reaction to election uncertainties. However, we anticipate this may change as November draws nearer and focus shifts to policy proposals and their respective differences. Volatility typically increases in the run-up to election day but often diminishes swiftly as investors refocus on the prevailing economic and market trends. We believe these trends are unlikely to undergo dramatic shifts merely due to a change in the White House occupant.

The key takeaway for investors is that markets have historically performed well under administrations from both political parties, a trend we expect to continue. Specifically, we predict that a divided Congress will curtail the potential for extreme policy implementations, allowing the markets to draw guidance from what we foresee as a prolonged economic expansion and continued cycle of rising corporate earnings. These factors have historically been the primary drivers of market performance.

Chinese stocks have experienced a remarkable surge, with the their index, reaching its highest weekly gain since 2008. This surge was triggered by Beijing's recent launch of an economic stimulus package. The unprecedented rally, reminiscent of the one seen in November 2008 during the global financial crisis, has not only lifted Chinese markets, but has also positively influenced industrial metals. This development comes as China's leadership scrambles to provide much-needed support to its capital markets, address a looming crisis in the property sector, and stimulate domestic consumption. Fortunately, our clients have been able to take advantage of this rally through their positions in Ero Copper (ERO), Alibaba (BABA), and the Delaware Emerging Markets Fund (DEMIX).

Election Implications

As we approach November 5, here are two essential takeaways based on historical market behavior after elections:

1. Election-driven market volatility is likely but temporary.

• Election periods naturally come with uncertainty, a sentiment markets do not favor. However, it's important to understand that this volatility is usually more about the market adjusting to potential new policy proposals rather than indicating a drastic win-or-lose outcome. Historically, market volatility tends to increase leading up to elections but generally subsides afterward. This pattern shows that once electoral uncertainties are resolved and a clearer policy outlook emerges—regardless of which political party takes the lead—the market typically refocuses on existing economic conditions. The potential for a divided Congress also curtails the likelihood of any extreme policies from either party being implemented, contributing to why markets have not overreacted to campaign proposals so far.

2. Markets have historically performed well post-elections, irrespective of political party.

• Over the past 80 years, the stock market has been positive in slightly more than half of the months leading up to presidential elections. More significantly, from the election through year-end, the market has been positive in all but three years. The most substantial post-election gains through year-end occurred in 1920, 1952, 1960, 2004, 1980, 1972, 2016, 1996, 1976, and 1992—spanning five Republican and five Democrat victories. This balance highlights that markets derive more consistent direction from broader fundamental conditions rather than the ruling political party. Therefore, investors should stay invested, as markets have generally thrived after elections.

Economic & Earnings Calendar

The upcoming week will be quiet outside of the release of September jobs data and few earnings reports. Investors and economists are closely watching for any signs of economic and labor-market weakness and the potential impact on Federal Reserve policy. Earnings season also unofficially kicks off on Friday October 11th.

The highlight of the week will be the jobs report on Friday. Economists predict an increase of 145,000 nonfarm payrolls in September, slightly more than the figures for August. The unemployment rate is anticipated to stay constant at 4.2%, and average hourly earnings for Americans are forecasted to rise by 3.8% from a year earlier.

In corporate earnings, several reports are due. Carnival will report on Monday, followed by Nike and McCormick on Tuesday. On Wednesday, Conagra Brands and Levi Strauss will release their earnings, with Constellation Brands closing the week on Thursday.

Additional economic indicators to watch next week include the Institute for Supply Management's Manufacturing Purchasing Managers’ Index for September, which will be released on Tuesday, and its Services PMI, expected on Thursday.

Chart of the Week: Market leadership shifted at the end of the quarter

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.