Election Day: Nov. 5, 2024

Services Accelerate Sharply, Boosting Economic Optimism

Services sectors, which comprise the majority of stateside economic activity, accelerated sharply last month, according to ISM’s Purchasing Managers’ Index. The Institute for Supply Management (ISM) benchmark strengthened from 54.9 last month to 56.0, the highest level since July 2022 and arrived well above the median estimate of 53.8. It is the fourth-consecutive month of advancement, signaled by a figure above 50. One noteworthy category was employment activity, which jumped 4.9 percentage points to 53.0. Analysts anticipated 48.1. After the number declined in September, employers said they are hiring to address attrition and holiday peak activity. Some commented that they are having difficulty with backfilling positions. The development is quelling concerns related to last Friday’s huge miss on nonfarm payrolls and is sending yields north. The following categories, while moderating, remained well above the expansion threshold:

• Prices continued to increase with a score of 58.1, but they climbed at a slower pace after September’s benchmark hit 59.4. October’s reading was still stronger than the 58.0 analyst forecast.
• Business activity decelerated from 59.9 to 57.2, which is still an impressive rate of growth, with some companies reporting that firms are planning to start the next phases of initiatives after the election.
• New orders also slowed slightly, dropping two percentage points from 59.4 and coming up short of the expected 58.0.

Past performance is not indicative of future results

ISM-Services Sends Yields North

Equities are rallying with every major benchmark and sector in the green as Americans gear up to select candidates for office. The Nasdaq 100, S&P 500, Dow Jones Industrial and Russell 2000 are gaining 1%, 0.9%, 0.8% and 0.7% on the session. All 11 segments are higher, led by industrials, consumer discretionary and technology, which are up 1.4%, 1.2% and 1.1%. Treasurys are going the other way, however, as a stronger-than-expected ISM-Services report pushes up borrowing costs. Also weighing on interest expenses are the prospects of continued deficit spending in Washington, as the 2- and 10-year maturities change hands at 4.22% and 4.36%, 6 and 7 basis points (bps) heavier on the session. The dollar is weakening, however, with its gauge down 26 bps as the greenback depreciates relative to most of its major counterparts, including the euro, pound sterling, franc, yen, yuan and Aussie and Canadian tenders. Commodity markets are robust, with silver, copper, crude oil and gold gaining 1.1%, 1.1%, 0.9% and 0.2%. Lumber is the exception, however, with prices declining 1.4% as mortgages above 7% hamper construction activity. WTI crude is trading at $72.28 per barrel on speculation that Riyadh may want to influence lighter supply in the coming weeks.

Strong Seasonals Favor Equities

Irrespective of who wins the presidency, strong seasonals favor stocks from now to year-end, especially since a blue sweep is not in the cards. The most likely scenario is a mixed Washington, with leaders on both sides of the aisle needing to compromise to get things done. But a red sweep is still possible, which will help equities via pro-growth policies that likely incorporate aggressive onshoring ambitions, lower corporate taxes and a subdued regulatory landscape. In conclusion, however, bond yields are critical to watch, as investors and traders alike examine the inflationary, deficit and activity impacts of incoming policies.