Stocks Rally Monday Ahead of Midterm Elections, CPI Report

Stock traders this week will be watching to midterm elections and key inflation reading via the Consumer Price Index, as well as following numerous earnings reports.

Midterms

The midterm elections put a lot up in the air and could be a short-term catalyst for markets searching for a reason to rise.

Going into the elections, Democrats hold the narrowest of majorities in the Senate, with Vice President Kamala Harris acting as the tie-breaker to the 50-50 split. Meanwhile, Democrats hold a 220-212 lead in the House of Representatives.

Morgan Stanley Strategist Michael Wilson predicts stocks could extend their bear market rally if Republicans were able to flip one or more chambers. This would be a short-term catalyst for stocks, as The Fed vs Inflation remains the chief concern for markets.

All House seats are up for grabs this midterm election, with just five of the 33 toss-ups needing to flip in order to change power in the Senate. This seems likely as, privately, some Democratic strategists have said that a loss of 20 seats could be considered a “good” night.

Meanwhile, in the Senate, there are 35 seats up for grabs, with only a net gain of one needed to flip control to Republicans.

CPI Report

Thursday’s Consumer Price Index will likely be the biggest catalyst for markets - at least over a longer term and not due to a knee-jerk reaction.

Last week, the Fed squashed hopes for a policy pivot, when Fed Chair Jerome Powell said there was still “some ways to go” and that “the ultimate level of interest rates will be higher than previously expected.”

Inflation is expected to have picked up the pace in October with a 0.7% monthly jump to the headline figure following a 0.4% rise in September. Core consumer prices are expected to rise 0.5%, a slight cooling from 0.6% in September.

Per usual, if rates top projections, markets will likely take a hit as it suggests that there is still a long road ahead for the Fed. Meanwhile, any signs of cooling could be key, especially as there will be one more CPI report before the next rate decision.

Earnings

Earnings reports will of course be a major player this week, as many large and well-followed companies are set to report.

Disney (DIS) and Beyond Meat (BYND) are both set to report this week.

Disney’s earnings report should be an interesting one as there is plenty to look out for. In focus will be Disney’s Parks, Experiences, and Products segment - which includes the company’s theme parks - and the Disney+ streaming service.

On the parks side of things, investors are expecting record revenue for the fourth quarter. The company is facing demands from the Disney Union to raise wages to $18/hour and is seeing standards drop as its hospitality and maintenance operations struggle with pandemic staff cuts.

On the streaming side of things, guidance on subscriber growth will be key as the company aims to launch an ad-supported tier to Disney+ following price hikes to the service.

While investors are keen to learn more about how the company is faring with increased competition, it is also facing calls by activist investor Dan Loeb to spin off ESPN and integrate Hulu into Disney+, among other things.

Meanwhile, plant-based meat company Beyond Meat is expected to narrow its loss per share on lower revenues. The company has struggled this year, down nearly 80% as it struggles to navigate supply chain shortages. Further, Beyond Meat tends to be pricier than regular meat, which - given the inflationary environment that has many pulling back on spending - has led to job cuts and a lower revenue outlook.