Tuesday's pre-election period saw a downturn in US equities, including the S&P 500 Index ETF (NYSEARCA:SPY (NYSE:SPY)), amid a storm of volatility and uncertainty. Despite this, historical data indicates a potential recovery in October. Investors are closely watching five key factors that could influence this trajectory.
The Biden administration's restrictions on Nvidia (NASDAQ:NVDA) chip sales to China have been one of the significant influences on the market. The move, aimed at curbing China's access to advanced semiconductors for AI breakthroughs, affected semiconductor stocks such as Nvidia itself, the Semiconductor ETF (NYSEARCA:SMH), and Advanced Micro Devices (NASDAQ:AMD). Despite this, the sector displayed resilience with a "bend, don’t break" price action and rallied intra-day.
Another factor contributing to market volatility is the week of monthly options expiration. During this period, choppy price action is often observed as traders and institutional investors adjust positions related to expiring options contracts.
The commencement of earnings season also plays a role in shaping market dynamics. The highly anticipated earnings releases from Tesla (NASDAQ:TSLA), Netflix (NASDAQ:NFLX), and Morgan Stanley (NYSE:NYSE:MS) are expected to cause ripples in the market.
Geopolitical tensions following an attack on Israel have added another layer of uncertainty. Despite rumors of an imminent Israeli ground attack, the Israeli military has indicated otherwise. This situation could significantly impact equities, the US Dollar, and gold.
Lastly, despite recent weakness in small-cap stocks, there are indications of a possible reversal in November. Historical data suggests that the iShares Russell 2000 Index ETF (NYSEARCA:IWM) typically performs well during this period.
As summer ends and end-of-year seasonality generally favors stocks, these five market areas should be closely monitored by investors. The interplay of these factors will likely shape the course of US equities as they navigate the pre-election turbulence and look toward a potential recovery.
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