Stock Market Outlook: November 2024

What should investors expect to happen on Nov. 6?

Investing based on the outcome of a presidential election is risky business, as we wrote in our January issue — especially for long-term investors.

"I would never tie a long-term market return to who is president," Liz Ann Sonders, the chief investment strategist at Charles Schwab, said in an email interview back in January.

But for active investors who look to profit from trends in specific sectors of the market, the election outcome is an important variable. Vice President Kamala Harris and former President Donald Trump have articulated very different visions for the American economy, from tax policy to immigration policy and more.

On top of that, Trump's efforts to dispute the results of the 2020 election have created a sense of anxiety about whether the election will go smoothly next week — and a significant delay or controversy around the results could potentially affect markets as well.

We asked two experts what investors should expect from the markets in the aftermath of Tuesday's election based on several different scenarios.

Markets may be pricing in a Trump win

Recent polls are split about which candidate has the upper hand. But prediction markets, such as PredictIt, Polymarket and Interactive Brokers Forecast Trader, expect Trump to win. A Harris victory would surprise these betting markets — and possibly the stock market, too.

According to Steve Strazza, the director of research for All Star Charts, an investment research website, these betting odds suggest that a second Trump term is "priced in" to many investments. The implication is that if Trump wins, not much may happen in the stock market in the days after the election because that's the outcome markets are expecting.

But if Harris wins, stocks that are expected to benefit from a Harris presidency — that may have been sold down recently in anticipation of a Trump win — could take off. On the other hand, a Harris win could also cause selloffs in certain investments that have recently traded upward in anticipation of a Trump win.

Which stocks might benefit from a Harris win?

Strazza points to solar energy stocks as a group that could rally if Harris wins. The Biden-Harris administration has made policy decisions that benefit the solar industry, such as extending the solar tax credit as part of the Inflation Reduction Act. That might not continue under Trump.

"If you look at TAN, the Invesco Solar ETF, last week, it was at its lowest levels since the COVID lows of 2020. So, while everything else has been doing great, these stocks have been getting destroyed," Strazza says. He says that solar stocks may rebound strongly if Harris wins.

Source: Finviz. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

Garrett Baldwin, the author of the Republic Risk Letter investment newsletter, says that electric vehicle (EV) stocks could also benefit from a Harris win.

The EV industry has also gotten a boost from Inflation Reduction Act tax credits — and some EV-focused ETFs, such as the KraneShares Electric Vehicles and Future Mobility ETF (KARS), have traded downward over the last year, potentially in anticipation of a Trump win.

Source: Finviz. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

Which investments might see a selloff if Harris wins?

Strazza says that regional bank stocks, as measured by the SPDR S&P Regional Banking ETF (KRE), have moved in sync with Trump's PredictIt odds of winning in recent months, reflecting an expectation that Trump would reduce banking regulations.

Source: Finviz. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

"As the betting markets have priced in a Trump victory more and more, the regional banks have done better and better. They've sold off together, too," Strazza says. He speculates that regional bank stocks could experience a correction if Harris wins.

Cryptocurrency is a similar story. Trump has promoted his own crypto venture, World Liberty Financial, while campaigning, giving rise to a perception that he would be friendlier to the crypto industry than Harris.

"Trump has really emerged as the crypto guy," Strazza says. Strazza believes that the recent upward momentum of cryptocurrencies like Bitcoin may be driven in part by the expectation of a Trump win — and that a Harris win could put pressure on them.

Source: Finviz. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

Baldwin says that a second Trump term could also be "very beneficial to pipelines" — that is, the subset of oil and gas stocks that specialize in transporting fossil fuels. In his first term, Trump approved the construction of new pipelines, such as the Keystone XL pipeline.

Pipeline stocks are often organized as master limited partnerships (MLPs) and typically pay substantial dividends. Pipeline ETFs, such as the Global X MLP ETF (MLPA), have traded upward recently. This may be another example of a group of stocks that have already priced in a second Trump term and may sell off if Harris wins.

Source: Finviz. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

What happens if results are delayed or contested?

In 2020, it took four days after the election for Joe Biden to secure a majority of electoral votes due to thin margins and slow ballot counting processes in key swing states such as Pennsylvania.

The risk that something similar could happen again looms large over any attempt to predict how next week will go.

Baldwin says that some level of post-election uncertainty is likely already baked into the market's expectations. He notes that in the last cycle, neither the delay in results nor the Jan. 6 riot at the U.S. Capitol Building to try to prevent Congress from certifying Biden's win had any negative effect on the major stock market indexes.

"I don't think the markets reacted at all to Jan. 6," Baldwin says.

In the three-month period between the beginning of November 2020 and the end of January 2021 — a period that included the election, the delay in announcing a winner, and the capitol riot — the S&P 500 rose more than 10%.

Source: Finviz. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

The bottom line: No one can predict the future, but post-election instability is unlikely to rattle markets, as it's widely expected anyway.

Term of the month: Zero-day options (0DTE)

The election may create opportunities for day traders by causing short-term swings in certain stocks — especially if Harris wins. Many traders try to profit from short-term swings by buying call options or put options rather than buying the underlying stocks themselves.

(As a brief reminder, options are contracts that give their holder the right, but not the obligation, to buy or sell an underlying security at a set strike price on or before an expiration date. Call options give their holder the right to purchase an underlying security, while put options give their holder the right to sell an underlying security.)

Some investors use options as insurance against unexpected market movements (for example, selling covered calls on a stock they own), or they buy call options to get exposure to a stock for less than the cost of its shares.

But other traders use options for high-risk, high-reward speculation. Recently, an especially risky type of options trading strategy has become popular among speculators: zero-day options, also known as 0DTE options.

What are 0DTE options?

Zero-day options are normal options — puts and calls — that expire in less than one day, hence the "0DTE" nickname (short for "zero days to expiration").

Typically, traders buy options well in advance of their expiration date. A trader might buy call options and then wait for positive investor sentiment or good news (such as a favorable earnings report) to increase the price of the underlying stock so that they can resell or exercise the calls for a profit before expiration.

But 0DTE option traders buy options on the day they expire in the hopes that they can quickly profit from a last-minute swing in price.

Why has zero-day options trading become popular recently?

According to researchers at the Johns Hopkins Carey Business School, the volume of 0DTE options on S&P 500 stocks has more than doubled since 2021 and now accounts for more than 43% of the total daily options volume on those stocks.

Some of the reasons for the growing popularity of zero-day options include:

• Low premiums: 0DTE options are often cheaper to buy than longer-dated options because time-to-expiration is a variable that affects option pricing. (More on that below.)

• Quick turnaround: Zero-day option trades, by definition, are opened and closed in a single day. That may appeal to traders who want to see fast results and don't like monitoring their investments over time.

• Availability of daily 0DTE options on some indexes: Since 2022, the Chicago Board Options Exchange (CBOE) has increased the number and type of options available on the S&P 500 index and Nasdaq 100 index such that there are now options on these indexes expiring every trading day. That has made 0DTE trading available daily.

What are some of the risks of 0DTE options?

There are reasons why zero-day options have become popular, but there are also reasons to be wary of their popularity. Zero-day options often come with outsized risks, even compared to normal options. These include:

• Losing your entire investment: Total loss is a potential risk of any options purchase, as options that are not profitable at their expiration date tend to expire worthless. But while normal options traders can watch the market in the days or weeks leading up to expiration and adjust for unexpected developments, zero-day options traders are making everything-or-nothing bets on expiration day. That means 100% losses are harder to avoid.

• Time decay: There are several variables that affect the price of an option. The price of the underlying stock matters, but so does the time left until expiration. An option's value generally decreases as it nears expiration; this is referred to as "time decay" or "theta decay." Without a favorable last-minute move in the underlying stock's price, the price of many 0DTE options will approach zero throughout the trading day due to time decay. This is why zero-day options tend to have relatively low premiums.

• Feedback effects: The rising popularity of 0DTE options could amplify expiration-day price swings, which itself would increase the potential risk and reward of 0DTE options trading.

It's worth noting that financial advisors generally don't recommend risky options trading strategies for most people. They're more likely to recommend a long-term, low-maintenance approach to investing, such as dollar-cost averaging into index funds.

If you're already investing for the long term, and you have extra money that you want to try zero-day options trading with, just be careful: Understand that you're making an all-or-nothing bet and that you'll win or lose that bet in less than a single trading day.

» Want to start trading options? See our picks for the best options trading brokers.

Dates that could move markets this month

Economic events

• Friday, Nov. 1: Bureau of Labor Statistics monthly employment report. A report showing hiring levels and various measures of the unemployment rate.

• Tuesday, Nov. 5: Presidential election. Voters will choose between Harris and Trump. After the 2020 election, it took several days for a winner to be declared.

• Thursday, Nov. 7: Federal Reserve interest rate decision. The Fed will conclude its monthly meeting and announce the new level of the federal funds rate. It is expected to announce a 0.25% cut, but it may keep interest rates unchanged.

• Wednesday, Nov. 13: BLS consumer price index (CPI) report. A key inflation gauge. The employment and CPI reports could give investors hints about what the Federal Reserve will do with interest rates in future meetings; unexpectedly high unemployment or low inflation could indicate that rate cuts are on the way.

• Friday, Nov. 22: Michigan Consumer Survey data for November. The University of Michigan will release its final data for last month's survey on Nov. 8 and its preliminary data for this month's survey on Nov. 22. The survey has become a closely watched indicator of ordinary Americans' perceptions of the economy.

• Friday, Nov. 29: Federal Reserve Bank of New York R-star estimate. The "natural rate of interest," or R-star, is an important indicator of the future trajectory of interest rates.

Earnings

Below is a table of blue-chip stocks that are reporting earnings in November, with the expected dates and average analyst estimates for their upcoming earnings reports.

We've filtered the list for companies with a market capitalization of at least $250 billion. These are high-volume stocks whose earnings reports are often major trading events for options traders and day traders.

No data above? Log in or register for a NerdWallet account to see the full earnings calendar.

Source: Nasdaq.com. Data is current as of Oct. 30, 2024, and is intended for informational purposes only.

» See our picks of the best online brokers for stock trading.