Election Day Markets, Post-Earnings Selloffs, and the Midterm Playbook

Grant Calloway

Welcome to the Bull Sheet. It's Tuesday, November third, Election Day, and yesterday I left you with Apple and Palantir waiting on the after hours stage. Well, the reviews are in, and they're not raves. Let's get into it before the greatest four hundred milliseconds in capitalism.

Grant Calloway

The headline today is the ballot box. All 435 House seats, 35 Senate seats and 36 governorships are up. Per Reuters, polls show Democrats likely to take the House, while the Senate is too close to call. UBS strategists put the odds at fifty percent for a Democratic sweep, forty percent for a split, Democrats in the House and Republicans holding the Senate, and ten percent for Republicans keeping both chambers.

Grant Calloway

Now, what does the market care about? Citigroup's Scott Chronert wrote that equity reaction is likely positive if Republicans hold the Senate, and negative if Democrats get a bigger foothold than expected. UBS's Mark Haefele says the most visible effects would be more oversight of the administration and harder fiscal negotiations. And Reuters notes a Democratic Congress could bring more scrutiny of AI companies, with public opposition to data centers growing. Analysts doubt any legislation would crush the buildout, but they do expect investigations into tech under a sweep.

Grant Calloway

Here's what I like. Options on the S&P 500 are priced for a move of about point eight percent either way on Wednesday, per ORATS. That's only a touch above the point six percent daily average over the past month. The pit never panics about a scheduled event. It panics about the surprise. And as Joe Tigay at Equity Armor put it, election hedges can expire, but geopolitical risk doesn't have an expiration date.

Grant Calloway

On the tape, it's sluggish. Dow futures are off roughly two hundred twelve points, about half a percent. S&P futures are down less than a tenth to two tenths of a percent, and Nasdaq 100 futures are flat to up about a quarter point. Tighter than a drum, and about as exciting.

Grant Calloway

Overseas, Tokyo is closed for Culture Day. South Korea's Kospi dropped four percent, with SK Hynix down five point seven and Samsung down four. Memory names, which rhymes with Apple's story in a minute, though I won't claim one caused the other. Hong Kong's Hang Seng rose point six percent, Shanghai slipped point eight. Europe is lower: the DAX off point six, the FTSE off half a percent, the CAC down point two.

Grant Calloway

Oil bounced about two percent. Brent is roughly one hundred three to one hundred six dollars, and WTI near ninety eight fifty. That follows Monday's slide of nearly eight percent, and per reports, U.S. strikes on Iranian targets on Qeshm Island in the Strait of Hormuz are keeping crude jumpy. The ten year Treasury yield is firm at about four point nine three percent. The dollar is stronger against the yen, around one fifty eight, and the euro is a bit softer near one eighteen.

Grant Calloway

Now the movers, and notice this is not only a tech show. Apple is down roughly three to four percent. This was the first report under new CEO John Ternus. Revenue beat, at about one hundred fourteen and a half billion dollars, and earnings of two ten beat the two oh one estimate. But the margin guide of forty five to forty six percent disappointed, with memory costs, component shortages for Macs and iPads, and Siri AI expenses all cited.

Grant Calloway

Palantir is off six to eight percent. Revenue doubled to two point three one billion and earnings beat. But U.S. commercial total contract value growth slowed to eleven percent from forty nine in the second quarter. Piper Sandler called that a fluke of duration rather than something structural. That's their view, not a fact. The market's view this morning is selling first.

Grant Calloway

Shopify is the ugly one, down seventeen to nineteen percent. Earnings of forty nine cents and revenue of three point seven four billion met or beat. But gross merchandise volume of one hundred nineteen point one five billion missed the one twenty point oh eight estimate, and subscription revenue of eight thirty six million missed eight fifty. Good number, wrong number.

Grant Calloway

Now the grown ups. Pfizer is higher after adjusted earnings of eighty seven cents against seventy three expected, revenue of sixteen point five eight billion, and a raised full year outlook to sixty two to sixty four billion in sales. Marathon Petroleum is higher on a big earnings beat, a four point two billion dollar sale of its Mandan and St. Paul Park refineries, a ten percent dividend bump, and a new five billion dollar buyback. And Yum Brands beat on earnings, one fifty six versus one forty nine, though Taco Bell same store sales fell four percent after a cyclospora outbreak tied to lettuce. CEO Chris Turner says Taco Bell has outpaced the industry since the end of September.

Grant Calloway

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Grant Calloway

Time for Bull versus Bear. The question: can post midterm history carry this market, or has it already been spent?

Grant Calloway

The bull goes first. Per Edward Jones, since 1970 the S&P 500 has gained in every six month period following a midterm election. Every one. Options traders are calm. And look at today's winners: Pfizer raising guidance, Marathon returning cash. Those are businesses throwing off money, not selling stories. Uncertainty gets resolved tomorrow, and the market usually likes that.

Grant Calloway

Now the bear, and the bear has a fair point. Neil Sethi at TheStreet Pro cites a Truist composite going back to 1950: in a typical midterm year, the S&P is up only about one percent at the end of October, then finishes up around five. This year it was already up ten point seven percent through October. So did we front run the rally? Add a ten year yield pinned near five percent and crude near one hundred, and a market paying premium multiples has little room for a stumble. Apple and Palantir just showed what a stumble costs.

Grant Calloway

The bull answers that Sethi himself notes the index is down roughly three and a half percent from its October peak. So some of that front running has already been given back. The bear shoots back that a three and a half percent dip off a big run isn't a reset. Fair. But the bull's reply is that the seasonal record doesn't ask for a clean entry. Fair again.

Grant Calloway

Where do I land? I've traded through two crashes, so I respect the record and distrust the word every. History is a tailwind, not a guarantee. If I had to pick, the bull has the better calendar and the bear has the better math. I'd watch whether the market punishes disappointments like Shopify's and Palantir's, or shrugs them off. That tells you who's really holding the steering wheel. Not advice, just how I'd read it.

Grant Calloway

On deck. At ten a.m. Eastern, September JOLTS job openings and factory orders, including final durable goods. October vehicle sales also land today. No Fed speakers are scheduled, though a Fed, ECB and New York Fed research forum runs in Washington through tomorrow, so keep an ear out for interviews.

Grant Calloway

Thirty seven S&P 500 companies report. Before the open: Pfizer, Eaton, Marathon Petroleum, Apollo, Keurig Dr Pepper, Yum, Sysco, Archer Daniels Midland, DuPont and Fiserv. After the close: AMD, Amgen, Arista Networks, Booking Holdings, Block, AIG, Prudential, Mosaic and Super Micro Computer. Energy Transfer reports too.

Grant Calloway

If you remember one thing today, it's that the polls close tonight and the real question is the Senate. Tomorrow we'll read the results and see how the tape takes them. The old floor rule still holds: markets hate surprises more than they hate bad news. This podcast is for educational purposes only and is not investment advice. I'm Grant Calloway. See you tomorrow before the bell.