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A sort-of Super Tuesday

market snapshot

8 March 2024 |
This week played host to ‘Super Tuesday’, a key date in the US presidential election calendar where key states hold their primary elections. This year’s results yielded few surprises and set up the 2024 US Presidential election to be a rematch of 2020.

Fast reading

  • President Joe Biden and his predecessor Donald Trump both earned a large number of delegates during Tuesday’s primaries, indicating the candidates will likely face off for a second time in November.
  • In his address to Congress on Wednesday, Chairman Jerome Powell suggested that, while the Fed’s policy rate cycle has likely reached its peak, the outlook for the economy remains uncertain.
  • Elsewhere, investors witnessed a surprise decline in the US dollar this week.

In a crucial day in the US election calendar, both President Joe Biden and former president Donald Trump dominated in their respective nominating contests this week, adding to expectations that both men will succeed in capturing final nominations ahead of the November election.

For Charlotte Daughtrey, Equity Investment Specialist at Federated Hermes, a Presidential race where the candidates are a known quantity could signify good news for the economy. “While it’s still too early to call the outcome in November, this should be a relatively de-risked election campaign with both candidates having previously held the position as leader of the free world. Both candidates will want a strong economy which tends to be good for markets,” she says.

Since 1976, stock market performance in the lead up to ‘Super Tuesday’1 has correlated closely with election results2. Broadly speaking, outperformance by the S&P500 has been a positive for the incumbent, while on the flipside, a decline in the index has been positive for the presidential challenger.

Daughtrey notes that the S&P 500 continues to reach new highs with the latest instalment of employment data suggesting that the labour market is performing in line with the Fed’s hopes.

Figure 1: The S&P 500 continues to soar

The Super Tuesday result came against a surprise decline in the US dollar in response to comments from US Federal Reserve chair Jerome Powell that he expected to dial back policy restraint at some point this year.

Daughtrey said that Powell’s comments provided comfort to investors while also adding fuel to expectations of a Fed rate cut in June and heaping downward pressure on the US dollar.

The contrast here is with Japan, where the Bank of Japan (BoJ) is widely expected to lift negative interest rates after an improved outlook in the country, as shown by Figure 2 below. The USD / JPY pairing was dragged to a four-week low as a result.

Figure 2: BoJ interest rate forecast pushes USD/JPY lower

Baby got buyback

Elsewhere, share buybacks have been a hot topic, with a spate of large cap companies announcing buyback schemes in recent weeks.

Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes, believes the surge in companies choosing the buyback route demonstrates the confidence they have in their outlooks for the year ahead.  

“With wage gains above inflation, economic growth can keep going in the near term,” she says. “With all the momentum for this year, increasingly there are those worried about what will take the fizz out of markets. Factor evidence suggests that even a slowdown in momentum does not lead to a selloff in the near term – so, the rally continues despite the choppy outlooks.”

UK equities closed at a two-month high on Wednesday in response to the UK pre-election budget announcement. The statement, delivered by UK Chancellor Jeremy Hunt, revealed planned tax cuts, benefit and income support, and predicted annual economic growth of 0.8%. The measures, while outwardly positive, does little to supress uncertainty surrounding future rate cuts, warns Dudley.

“The UK budget led to a positive move for UK equities, though with inflation still high, the expectation for Bank of England cuts remains on the distant horizon and therefore we maintain some caution about the sustainability of the UK growth numbers.”

In recognition of International Women’s Day on Friday 8th March 2024, our female experts from across our business have come together to share what’s been moving their markets this week. Follow the link to hear more.

To hear more about US equities, watch our latest video Q&A.

1 Super Tuesday refers to the date in the US electoral calendar when the greatest number of US states hold primary elections and caucuses. Results from these primary elections are seen as a good indicator of the presidential candidates for each political party.

2 Bloomberg, as at 7 March 2024.

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