This Week's Historic Volatility Forecasted in the US Stock Market... The Reason Is

"‘Growth Slowdown’ Q3 Earnings of 5 Major Big Tech
Rising Treasury Yields Ahead of Presidential Election
Distorted October Employment Report"

This week, the U.S. stock market is expected to experience extreme volatility due to the earnings reports of the five major Nasdaq big tech companies, distorted October employment data releases, and soaring government bond yields ahead of the presidential election.

According to the New York Stock Exchange on the 27th (local time), the five big tech companies will announce their third-quarter (July-September) earnings starting with Alphabet, Google's parent company, on the 29th. On the 30th, Microsoft (MS) and Meta Platforms, Facebook's parent company, will release their quarterly results, followed by Apple and Amazon on the 31st.

Bloomberg Intelligence estimates the average third-quarter earnings growth for the five big tech companies at 18.5%. This is more than four times the expected average earnings growth of 4.3% for S&P 500 companies in the same quarter, but it is half the growth rate of the previous quarter (36.1%). It is also the slowest growth since the first quarter of last year (-2.9%).

Given that big tech stocks, which surged significantly this year, require strong earnings to continue rising, the slowdown in growth could exert downward pressure on stock prices. In this regard, Eric Bailey, Managing Director of Asset Management at Steward Partners, explained, "This is because big tech stocks are currently trading at very high valuations." Clark Bellin, Chief Investment Officer at Bellwether Wealth, emphasized, "The music could stop at some point, and investors need to adjust their expectations for this earnings season."

However, with the third-quarter earnings of semiconductor companies TSMC and SK Hynix confirming the ongoing AI technology boom, there is also a prospect that the market could cheer if big tech companies express a stronger commitment to investing in AI. According to Bloomberg, the five big tech companies' AI capital expenditures for the third quarter are estimated at $56 billion, a 52% increase from the same period last year. If big tech's AI investments translate into profits, this could act as a factor driving stock price increases.

On the other hand, the fact that government bond yields remain high ahead of the U.S. presidential election is a variable that could increase stock market volatility. The yield on the 10-year U.S. Treasury note closed at around 4.23% on the 25th and has since risen further, reaching its highest level since the end of July. This is due to the increased likelihood of former President Donald Trump, the Republican presidential candidate, winning, and the expectation that massive government fiscal deficits will inevitably expand regardless of which party's candidate is elected. Typically, when bond yields rise, the stock market tends to fall due to concerns about slower growth caused by increased corporate financing costs.

The October nonfarm payroll report, which the U.S. Federal Reserve (Fed) is closely watching ahead of its interest rate decision, will be released on November 1. Wall Street has pointed out that the Boeing workers' strike and the impact of two powerful hurricanes, Helen and Milton, could temporarily reduce jobs, which is another factor that could increase market volatility. Kelly Cox, Senior Market Strategist at Resoltz Wealth Management, said, "The October employment report will be a mess," adding, "It already feels disappointing as it seems unlikely to provide any clear signals."

MarketWatch highlighted that October 31 is Halloween and noted, "Halloween generally falls within the month-end portfolio rebalancing period, so this day could be the most volatile day of the year."

Some experts advise buying gold to avoid stock market volatility. Deck Mulraki, Investment Strategy Director at SLC Management, emphasized, "Gold is well known as a hedge when stock market uncertainties increase," adding, "If the U.S. presidential election results bring more tension, the value of precious metals could rise again."