US macro, earnings are ‘a bigger influence’ on markets than election: Citi

Investing.com — As the U.S. election approaches, Citi analysts report that markets are not following the typical patterns seen in previous election cycles, suggesting that U.S. macroeconomic indicators and corporate earnings are exerting a greater influence than election-related factors.

The bank notes that historically, U.S. equities tend to dip in the month leading up to an election, and volatility typically increases. However, this year’s October rally in equities and a lower indicate that other economic factors are playing a more prominent role.

“U.S. equities are typically weaker in the one-month lead up to the election, but equity markets have been relatively strong this October,” Citi notes.

Additionally, instead of the usual defensive shift toward Quality stocks, Growth and Price Momentum have outperformed, indicating “no style de-risking,” as Citi highlights.

In a similar sentiment, Morgan Stanley also stated Monday that immediate market reactions to election outcomes often fail to represent long-term trends.

According to Morgan Stanley, investors should “compare ‘what’s in the price’ to the ‘plausible policy path,’” as short-term moves tend to be “noisy” and can mislead investors.

Citi’s analysis points to possible post-election trends, particularly that U.S. equities could rally once the election uncertainty clears.

“U.S. equities tend to perform positively (if not rally) post the election,” with current positioning indicating an expectation of further gains.

However, Citi cautions that rising rates could challenge this outlook, as higher bond yields may exert downward pressure on stocks.

The bank adds that in recent months, the primary market dynamics have been influenced by macro events rather than politics. As Citi puts it, “other risks, such as U.S. macro, reporting season etc., are having a bigger influence than any perceived election risks.”