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MICHAEL J. HALLORAN, CFA | Equity Strategist of Janney Montgomery Scott
Wyncote Wealth Management Group

Highlights for this week include: 

• While stocks are experiencing some volatility in the election aftermath, stocks have historically delivered above-average returns in the year after midterms. 

• October’s business surveys remain consistent with solid activity for both the manufacturing and service sectors. However, the surveys indicate that inflation remains a key concern. 

• Earnings are once again impressively beating expectations, supported by the healthy economic readings we are seeing. Expectations now point to robust earnings growth of 31% for the third quarter. 

• While higher bond yields and energy prices pose a headwind, we continue to favor stocks, which are supported by a solid economy and strong corporate earnings. 

Thoughts On the Mid–Term Election Results 

Democrats won control of both the House of Representatives and Senate in the just completed midterm elections, with the new Congress taking office in January 2027. We see several major investment implications. 

Stocks have historically delivered above-average returns in the year after midterms. 

With Democrats controlling Congress but Trump having veto power, major changes to taxes, spending, and legislation will become more difficult. 

The new Congress, and importantly governors in key data center states could increase scrutiny of data center development, electricity costs, and Al regulation, which would slow the pace of the Al buildout. 

Oil prices and energy stocks declined following the election, suggesting investors appear to be anticipating a potentially different approach to the Iranian conflict. 

Tariffs have likely peaked, with Congress potentially pressuring for trade deals and de-escalation. 

Business Survey Consistent with Strong Economic Growth with Inflation 

At the beginning of the month, we get business surveys from the Institute for Supply Management (ISM) and S&P Global that provide timely insight into private sector business activity. These surveys cover the economically sensitive manufacturing sector and the much larger service sector. Encouragingly, the surveys from both the ISM and S&P Global remain consistent with solid activity for both the manufacturing and service sectors. Importantly, the conviction in our outlook gets bolstered when both surveys are positively aligned as they are now. However, inflationary pressures remain a concern. 

Labor Market Indicators Remain Healthy Heading into Friday’s Job Report 

A healthy labor market is a key support for consumer spending and economic growth. Consequently, we follow labor market indicators closely. The business surveys discussed above are consistent with further job growth while the ADP employment report showed private sector employment rising to a better-than- expected 86,000 in October. The September Job Openings and Labor Turnover Survey (JOLTS) adds to the evidence of healthy labor demand. Job openings jumped by 333,000 to 7.52 million, well above the 7.1 million consensus, lifting the job openings-to-unemployed ratio to 1.06 from 1.02 in August. 

Meanwhile, weekly unemployment claims, arguably the best labor market indicator, remain historically low. Once again, initial jobless claims fell 6,000 to 189,000 in the week ended October 31. Jobless claims are at the lowest level since 1969, when the labor market was significantly smaller, consistent with a healthy labor market. 

Another Strong Earnings Season and We Continue to Favor Stocks 

Earnings are once again impressively beating expectations, supported by the healthy economic readings we are seeing. We now have about 77% of the S&P 500 results. Expectations are for robust earnings growth of 31% for the third quarter (3Q). This compares to growth of 33% in 2Q, which was well above initial consensus estimates. 

Earnings are beating estimates by 5.1% on aggregate so far, with 77% of companies topping projections to date. Earnings are on pace for 32% growth, assuming the historical trend of estimate revisions through the end of the reporting season. 

Strong economic growth but persistent inflation is having a negative influence on Treasury yields. While higher bond yields and energy prices pose a headwind, we continue to favor stocks. Stocks remain supported by a healthy economy and strong corporate earnings. 

Disclaimer 

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For additional information or questions, please consult with your Financial Advisor.

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