Thierry Hasse: The bull keeps charging! US markets hit record highs – but can it last?
U.S. stock markets continued to climb, hitting record highs last week as strong earnings reports from multiple industries lifted equities higher. This steady grind upward reflects solid fundamentals across the financial, technology, and small-cap sectors. However, with the U.S. presidential election just a few weeks away and potential market volatility on the horizon, investors should remain cautiously optimistic as they navigate this bullish environment.
Chief Investment Officer Thierry Hasse
Financials lead early gains
Financial stocks kicked off the rally last week, with Goldman Sachs reporting strong trading results, while Morgan Stanley’s wealth management division exceeded expectations. As the week progressed, the technology sector took over, driven by Taiwan Semiconductor’s reaffirmation of the growing demand for chips, particularly in the Artificial Intelligence sector. Even smaller companies joined in, with the Russell 2000 index climbing to a 3.5-year high, reflecting broad-based market participation (Source: CNBC).
Interest rates hold steady amid central bank activity
While interest rates fluctuated throughout the week, Treasury yields ended essentially unchanged, with the 2-year note at 3.95% and the 10-year note at 4.07%. Central banks globally remain supportive, with the European Central Bank (ECB) cutting interest rates for the third time this year. ECB President Christine Lagarde noted that the “disinflationary process is well on track,” similar to comments made by U.S. Federal Reserve Chairman Jay Powell last year when U.S. interest rates were also adjusted to support economic growth.
Cautious optimism and market risks
Investors are riding a wave of positive sentiment as U.S. corporate earnings continue to grow, stocks enter a seasonally favorable period, and the Federal Reserve recalibrates monetary policy with the economy expanding at a healthy 3%. Additionally, markets seem to favor the possibility of a split government after the election, i.e., the President and Congress from opposite parties. This scenario would likely lead to legislative gridlock, which, historically, the financial markets prefer. As this blog is being written, markets are at all-time highs, and we sense that complacency is setting in. Any unexpected negative news—particularly around the election—could bring sharp volatility and significant market corrections.
In the coming weeks, third-quarter earnings reports from the majority of S&P 500 companies are expected, with growth predicted at around 4%, according to FactSet. While some negative surprises may occur, the most significant risk remains the potential for a contested U.S. presidential election. A lack of a clear winner could lead to chaos, with markets possibly seeing a correction of 10% or more. Investors should stay informed, focused on fundamentals, and prepared for possible volatility as the political landscape unfolds.
The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.