Traders could be forgiven for breaking out their champagne glasses, even though 2024 isn’t halfway done yet.
US stocks have leaped from all-time high to all-time high this year: the S&P 500 has surpassed its own record a staggering 31 times since January. That equates to a new all-time high about every four trading days.
Investors have shrugged off elevated interest and inflation rates, a chaotic political and global environment and general economic uncertainty to give markets the best start to an election year on record.
What’s happening: Presidential election years are typically good for stocks.
The S&P 500 alone has generated an average return of 7% during presidential election years since 1952, according to LPL Financial. If you limit that to election years in which the incumbent president is running for reelection, the average jumps to 12.2%.
This year, the index has already far surpassed those average gains. The S&P 500 is 14.6% higher year-to-date — the best start to an election year on record, according to Goldman Sachs — and up nearly 31% from its October 2023 low at 4,117 points.
So why is this election cycle different from all the others that have gone before?
Gains are typically higher when incumbent presidents run for reelection, most likely because investors crave stability. And this election is the first since 1892 that the nominees of both major parties have occupied the White House, notes Ed Clissold, chief US strategist at Ned Davis Research.
If one incumbent running for office reduces uncertainty, then two incumbents really reduces uncertainty. That could pull the typical year-end election relief rally forward, said Clissold.
A reason to celebrate: Not only are stocks up, they’re rarely going down.
It’s been 333 days since the S&P 500 recorded a decline of 2% or greater, which is the longest stretch since February 2018, wrote Goldman Sachs’ Scott Rubner in a recent note to clients. His outlook for the latter half of the year remains positive — a good first half means a “very good” second half, he wrote.
“The impressive market rally continues, notable not only for its strength but also for its stability,” wrote Nationwide’s chief of investment research, Mark Hackett, in a note Friday. “[T]here is no reason that the steady march higher can’t persist, particularly as we approach the tailwind from election seasonality.”
Last week’s rally was broad, assuaging some concerns from investors that recent gains have been concentrated in a few big names like tech darling Nvidia, which is up more than 155% so far this year.
The equal-weighted version of the S&P 500 rose 1.12% and the small cap Russell 2000 gained 0.79% while the tech-heavy Nasdaq was flat on the week.
The sustained gains are causing some analysts to raise their year-end targets for the S&P 500.
Scott Chronert, research head of US equity strategy at Citigroup, raised his year-end target to 5,600 from 5,100 last week.
Analysts at Goldman Sachs, Barclays, Deutsche Bank and UBS have also revised their expectations for the broad-based index higher.
Yes, but: Market volatility in an election year tends to pick up in October and there are many months left in this cycle with potential surprises to come.
Thursday brings CNN’s televised debate between President Joe Biden and former president Donald Trump. “There is plenty of scope for big headlines and for the candidates to gather some momentum or see it go into reverse,” wrote Deutsche Bank’s Jim Reid.
There’s also the prospect that investors get complacent and begin to take the current bull market for granted.
“The longer optimism remains high, the bigger the risk that it turns into complacency and leaves the market vulnerable to the next piece of negative news,” said Clissold with Ned Davis Research.
“An autumn pullback fits well time wise with potential downside earnings revisions, make-or-break decision time for the Fed, and election uncertainty. The risk is that one or more of those catalysts prove to be longer lasting, turning a pullback into something more,” he said.
A global view: The United States isn’t the only country with an upcoming election. France and the UK both face elections in the coming weeks. While opinion polls suggest the opposition centre-left Labour Party is heading for a comfortable victory in the UK on July 4, the situation in France is much more uncertain, and markets have been rattled.
French President Emmanuel Macron called a snap parliamentary election after his centrist Renaissance party lost heavily to the far-right opposition in European elections.
The first round of the French election will be held on June 30, with a second round on July 7.
“Political uncertainty is a near-term headwind to both sentiment (reflected through financial markets) and, now, activity,” wrote Katie Nixon, chief investment officer for Northern Trust Wealth Management, of the upcoming elections. Until July, “we can anticipate volatility in European equity and debt markets.”
Alaska Airlines reaches tentative labor deal with flight attendants
Alaska Airlines and its 7,000-member flight attendants union reached a tentative labor deal late Friday, concluding talks that lasted more than a year and a half, reports my colleague Chris Isidore.
Terms of the deal have not been released, though the union called it a “record contract.”
The deal likely contains a significant pay raise, which has been a common demand across the airline industry and sought by unions whose members in some cases have not seen a pay increase in years.
In April, the union announced to members it was seeking pay raises of between 43% to 56%, depending upon seniority, through 2026. Those pay raises would include back pay covering a period dating back a year and a half that they’ve worked under the terms of the previous contract.
In February, flight attendants from Alaska — along with American, United and Southwest —held unprecedented coordinated pickets demanding new contracts.
Since then, flight attendants at Southwest reached a deal that included an immediate 22.3% raise as of May 1 and $364 million in retroactive wages.
Meanwhile, flight attendants at American and United are still seeking new deals. American flight attendants have asked to be released from restrictions so they can go on strike, but even if that is granted there would be months of cooling off periods before they could walk out, under the Railway Labor Act.
Apple’s new China problem: ChatGPT is banned there
Apple is banking on its upcoming AI features to boost iPhone sales especially in China, where demand has been lagging.
But there’s a problem, reports my CNN colleague Samantha Murphy Kelly, ChatGPT — soon to be integrated into Siri — is banned in China.
In a presentation earlier this month, Apple (AAPL) showed off its proprietary technology called Apple Intelligence to power compelling new AI features and announced a partnership with OpenAI to also use its viral ChatGPT tool in a limited capacity. (When Siri is activated and needs more assistance answering an inquiry, ChatGPT can step in.)
The move signaled how Apple is trying to expedite the latest buzzy technology at a time when tech rivals, such as Microsoft, Google, Meta and Samsung, have already found their AI footing. A deal with OpenAI could help Apple close the gap.
But China is one of the first countries in the world to regulate the generative AI technology that powers these popular services. In August, the Cyberspace Administration of China, the country’s top internet watchdog, rolled out new guidelines for the industry, requiring companies to seek approval before deployment. The organization has approved more than 100 AI models as of March, all from Chinese companies.
According to a report from the Wall Street Journal Thursday, Apple is looking for a Chinese AI company to partner with ahead of the iPhone’s expected September launch, but it hasn’t reached a deal yet.
Apple did not respond to a request for comment.
The need to find a partner — and quickly — comes at a time when Apple’s smartphone sales tumbled a stunning 10% in the first quarter of this year, according to market research firm IDC, due largely to iPhone sales sharply dropping in China. The company has lost momentum in China as nationalism, a rough economy and increased competition have also hurt sales. China is the company’s second-largest market.
