Asian Shares Rise Amid US Election, Earnings Focus: Markets Wrap

Asian markets started the day on a positive note, with investors focusing on the upcoming US election and key earnings reports. Futures pointed to gains in Hong Kong and Sydney, while Tokyo shares remained steady as Prime Minister Shigeru Ishiba vowed to restore stability following the ruling coalition's failure to win a majority in Japan's weekend election.

Most major groups in the S&P 500 gained at the start of the busiest week for corporate earnings, though energy shares joined a slide in oil prices. US markets seemed to embrace the potential prospect of Donald Trump returning to the White House after his high-profile event in New York on Sunday. Trump Media & Technology Group Corp. soared 22% as retail traders touted the stock, which has traded like a proxy for sentiment on his perceived chances of winning the presidency.

Crypto companies surged, with Bitcoin rising past $70,000 for the first time since June in early Asian trading. A victory for Trump would be more beneficial for stocks and Bitcoin relative to his Democratic opponent, while a Kamala Harris presidency would bring slightly more relief to housing costs, according to a Bloomberg Markets Live Pulse survey. Some 38% of respondents see equities accelerating a year from now under the Republican candidate, versus 13% under the Democrat.

The S&P 500 rose 0.3%, while the Nasdaq 100 was little changed. The Dow Jones Industrial Average gained 0.6%, and the Russell 2000 of small caps climbed 1.6%. In late hours, Ford Motor Co. dropped after trimming its profit forecast.

Bonds fell amid weak demand for a pair of US note sales. Treasury 10-year yields advanced three basis points to 4.27%. Oil rose in early Asian trading after tumbling on Monday as Israel limited Iran strikes to military targets.

Japan's Ishiba indicated he intends to continue as prime minister and seek to form an administration even after his gamble on an early election failed. The country's stocks climbed Monday, in part due to anticipation that a weaker government may unleash more spending to boost the economy. The yen was steady early Tuesday after falling as much as 1% following the result. The currency has now given up all its gains since the Bank of Japan increased interest rates in late July, raising the risk that authorities may wade back into the market as the political uncertainty clouds the rate trajectory.

The Biden administration finalized restrictions on investments by US individuals and companies into advanced technology in China, including semiconductors, quantum computing, and artificial intelligence.

Election, Earnings
In the US, Callie Cox at Ritholtz Wealth Management says pre-election jitters still haven't shown up in the stock market. The S&P 500 hasn't had a 1% up or down day this month. If that continues to be the case, it will be the first October without a move that big since 2017, she said. It'd also be the first October of an election year without a 1% move since 1968.

"We're heading into a busy two weeks," Cox said. "The election conversation will be the loudest, but the packed slate of earnings and economic data could be what markets care about the most. And the results could be noisy, especially from the jobs side."

A week before the Fed gathers to reflect on the appropriate tempo of rate cuts, data is set to show underlying resilience in the US economy and a temporary hiccup in jobs growth. Investors are also awaiting results from firms accounting for nearly 42% of the S&P 500's market capitalization, including several big techs like Apple Inc., Microsoft Corp., and Meta Platforms Inc.

"This week's megacap tech earnings and jobs data will provide plenty of potential fuel for near-term market momentum, but it remains to be seen whether investors will want to sit on their hands until after next week's election, especially given the volatility around the past two," said Chris Larkin at E*Trade from Morgan Stanley.

Equities sold off the week before the 2016 and 2020 elections and rallied sharply after them, he noted. To Saira Malik at Nuveen, it is critical to remain focused on long-term investment goals and attentive to the broader economic backdrop and company fundamentals, as election-driven volatility has historically been short-lived.

"With that in mind, corporate earnings, inflation, and the direction of interest rates should continue to be the structural drivers of financial markets," she said. "This was evident in the recent backup in US Treasury yields after they bottomed in mid-September following the Fed's rate cut. Since then, the uptick in yields, paired with a strong labor market and resilient consumer spending, has supported the view that the economy remains on a solid footing."

Asian markets continue to monitor the US election and earnings season, with investors anticipating potential impacts on regional currencies, bond yields, economic growth, and trade agreements. The Federal Reserve's reaction to different US election outcomes will also be closely watched, as it may influence global monetary policy and market sentiment.