Market Trends and Predictions Ahead of Election Day

Tom Lee believes stock markets will rally post-election despite current uncertainties.

### Market Outlook: Impacts of Federal Cuts and Upcoming Elections
* 📉 Morgan Stanley has downgraded the auto sector, including General Motors, which has seen a **5% decline in stock value**.
* 📊 Tom Lee, Fundstrat's head of research, believes the Federal Reserve's recent actions have initiated a **positive easing cycle**, historically benefiting markets **three to six months later**.
* 🗳 However, he notes that the upcoming election in **40 days** may delay a significant post-Fed market rally as many investors prefer to **wait until after the election to commit capital**.
* 📈 Historically, November and December have shown **strong rallies** in election years, especially when the market is **up over 10%** in the first half of the year.
* 🔍 Lee observes a high percentage of investors suspecting a recession, but he anticipates a shift back to a "**soft landing**" view if upcoming economic data, like core PCE, confirms that **inflation is under control**.
* 💡 While he acknowledges the potential for upside in the market over the next three to six months, he is cautious about making **aggressive short-term predictions** due to current valuations.
* 💻 The performance of the tech sector will be crucial; if tech stocks **underperform**, it could hinder overall S&P 500 **gains**.
* 🌏 Lee also sees positive signs from China's recent economic performance, suggesting it could **influence global markets and benefit certain sectors**, particularly **luxury goods**.

WE'RE WATCHING AUTO STOCKS, TOO. MORGAN STANLEY OUT OF JONAS, DOWNGRADED THE SPACE, INCLUDING MOVING GENERAL MOTORS TO UNDERPERFORM. THAT STOCK DOWN BY 5%. IT TAKES US TO THE TALK OF THE TAPE. HOW MUCH MORE CAN STOCKS RISE? TOM LEE IS FUND STRAT'S HEAD OF RESEARCH, CNBC CONTRIBUTOR. LIVE AT POST NINE. NICE TO SEE YOU. SINCE THE FED DID THE JUMBO CUT, THE MARKET HASN'T DONE MUCH EXCEPT FOR LAST THURSDAY. WHY? >> YOU KNOW, I THINK THE FED UNLEASHED US ON AN EASING CYCLE, AND THAT'S GOING TO BE POSITIVE. WE KNOW IT'S ACTUALLY HISTORICALLY POSITIVE, THREE MONTHS, SIX MONTHS OUT.

WHAT STOCKS DO IN THE NEXT MONTH IS A COIN FLIP. I THINK THAT'S WHAT WE'RE SEEING BECAUSE THERE'S SOME REPOSITIONING THAT TOOK PLACE. AND WE'RE THINKING ABOUT THE 40 DAYS UNTIL THE ELECTION. >> SO DOES THE FACT THAT THE ELECTION IS BUT 40 DAYS AWAY SORT OF RUIN THE PERFECT SCENARIO FOR STOCKS TO GET THAT POST-FED BUMP? >> I THINK IT DELAYS IT. JUST BECAUSE -- IN THE CONFERENCES THAT I'VE BEEN SPEAKING TO -- SPEAKING AT AND SEEING WEALTH MANAGERS AND FAMILY OFFICES, A LOT DON'T WANT TO COMMIT CAPITAL UNTIL AFTER ELECTION DAY. THEY WANT TO GET THAT EVENT BEHIND THEM. >> YOU THINK WE'RE GOING TO HAVE

A DASH TO THE FINISH AFTER ELECTION DAY IS OUT OF THE WAY? >> YEAH. AND THAT'S PRETTY TYPICAL. IN FACT, IN ELECTION YEARS, THE NOVEMBER-DECEMBER RALLIES ARE TREMENDOUS. IN FACT, WHEN MARKETS ARE UP MORE THAN 10% IN THE FIRST HALF, YOU ALSO GET BIG RALLIES NOVEMBER, DECEMBER. SORT OF CHOPPY THROUGH SEPTEMBER. >> YOU THINK INVESTORS ARE SOLD ON THE IDEA THAT THE ECONOMY IS GOING TO MAKE IT THROUGH, THE FED'S GOING TO PULL THIS OFF? IS ANY OF WHAT WE'VE WITNESSED SINCE FED DAY DOUBTS ABOUT THE BIGGER PICTURE? >> SO FAR, SO GOOD. THIS FRIDAY, WE GET CORE PCE, AND HOPEFULLY, THAT CONFIRMS INFLATION IS NO LONGER ON THE

FRONT BURNER. I WOULD SAY ONE THING I'VE NOTICED IS THAT THE NUMBER OF INVESTORS AND PROFESSIONAL MONEY MANAGERS THAT THINK WE'RE ALREADY IN A RECESSION IS VERY HIGH. AND SO I THINK THE EVIDENCE JUST HAS TO BE BETTER THAN EXPECTED, AND I THINK THOSE VIEWS SHIFT BACK TO SOFT LANDING. >> WHEN WE'VE SEEN RECENTLY TARGETS FOR THE S&P, BRIAN BELSKI, THE LATEST TO RAISE THE TARGET TO THE HIGHEST ON THE STREET. I'VE ASKED YOU ABOUT THE MARKET LATELY, YOU HAVEN'T SOUNDED LIKE YOU WOULD BE RAISING YOUR OWN TARGET TO A DEGREE LIKE THAT, WOULD YOU? >> YOU KNOW, I THINK THERE IS A LOT OF UPSIDE IN THE FORESEEABLE

FUTURE. LET'S SAY THREE, SIX MONTHS OUT. BUT FOR SOMEONE TO TACTICALLY SAY WE NEED TO PEN A 6,000 TARGET AND THEN PUT MONEY TO WORK TODAY, I THINK IT'S HARDER TO MAKE THAT CASE BECAUSE VALUATIONS AREN'T ON THE CHEAPER END, AND WE'VE ALREADY HAD A FAIRLY SIZABLE MOVE. I'M NOT SAYING I'M LIKE BEARISH NOW, BUT TO ME I'M -- I HAVE MORE CONFIDENCE SAYING THREE, SIX MONTHS OUT. THINGS ARE ATTRACTIVE. THINGS LIKE MARGIN DEBT. IT'S DECREASED IN AUGUST, MEANING INVESTORS HAVE BEEN DELEVERAGING. IT HASN'T GONE ANYWHERE FOR THE LAST FOUR MONTHS AT A TIME WHEN MARKETS ARE RISING. >> I GUESS MY POINT WOULD BE IT

WOULD HAVE BEEN BETTER ARTICULATED TO JUST SAY YOU DON'T SOUND AS BULLISH AS YOU USUALLY ARE. IS THAT FAIR? >> YOU KNOW, YES. I'M BULLISH INTO YEAR END, BUT I'M LESS CONFIDENT ABOUT HOW MARKETS BEHAVE INTO ELECTION DAY. AND NOT THAT I THINK WE'RE GOING TO HAVE A HUGE DRAWDOWN, IF WE DO HAVE A BIG DRAWDOWN, I'D BE BUYING THAT DIP. BUT I ALSO DON'T THINK WE CAN MAKE NEW HIGHS AND THEN SEE THE MARKET BLAST OFF AFTER ELECTION DAY. SO I'D RATHER SORT OF SAY THINGS LOOK A LOT BETTER AFTER ELECTION DAY. >> CAN WE MAKE NEW HIGHS IN TECH DOESN'T RESUME ITS LEADERSHIP ROLE IN ANYWHERE CLOSE TO THE DEGREE THAT IT HAD? >> AS LONG AS TECH IS A MARKET

PERFORMER -- IF TECH DECLINES, THAT'S GOING TO BE HARD FOR THE REST OF THE S&P 500 TO COMPENSATE. BUT WHAT WE'VE SEEN SO FAR, INCLUDING THE DAYS LIKE NVIDIA AND TESLA RECENTLY, IS THAT TECH IS ACTUALLY HOLDING ITS OWN, BUT OTHER STOCKS ARE STARTING TO SHOW CATALYSTS AND SIGNS OF LIFE. >> WHAT ABOUT THE BROADENING TRADE? I MEAN, YOU LOOK AT THE RUSSELL, YOUR BIG CALL, OF COURSE. TWO WEEK DATE, DOWN MORE THAN -- WEEK TO DATE, DOWN MORE THAN 1%. HASN'T DONE MUCH. I KEEP HEARING YOU GOT TO WAIT UNTIL THE FED CUTS, THEN GO INTO THE RUSSELL. I DON'T KNOW. WHAT DO YOU THINK? >> RUSSELL HAD A BIG WEEK LAST WEEK.

SOME PROFIT TAKING NOW. I THINK THAT THERE'S -- THIS IS WHAT BOTTOMS LOOK LIKE. I DON'T THINK BOTTOMS ARE STRAIGHT UP. I KNOW IN 2021 ENERGY WAS BOTTOMING, AND IT WAS ALSO VERY CHOPPY. BUT EVENTUALLY MADE NOT ONLY NEW HIGHS BUT THEN BASICALLY HAD A BLISTERING GAIN IN 2020 AND THE YEAR FOLLOWING. I THINK THAT'S A MULTIYEAR START FOR THE RUSSELL. IT FEELS CHOPPY, BUT WE'RE STILL NEAR ALL-TIME HIGHS. AND THERE'S A BIG FUNDAMENTAL CASE TO OWN SMALL CAPS. >> SOME HAVE MADE THE CASE THAT THERE ARE A LOT OF AREAS OF THE MARKET THAT ARE OVERCROWDED AT THE POINT. SO MANY SECTORS HAVE GONE UP A BUNCH. YOU LOOK AT INDUSTRIALS AND

UTILITIES AND OTHER THINGS THAT HAVE TRADED NEAR OR AT HIGHS. THEREFORE, THEY FIND BETTER VALUE IN BONDS. WHAT DO YOU THINK? >> YOU KNOW, I THINK A BOND INVESTOR IS BUYING A BOND FOR A DIFFERENT REASON THAN BUYING AN EQUITY. BECAUSE AN EQUITY GIVES YOU NOT ONLY INFLATION PROTECTION AND BENEFIT FROM FALLING YIELDS, BUT ALSO CAPITAL APPRECIATION AND POSITIVE SURPRISE. BONDS RARELY GIVE YOU POSITIVE SURPRISE. I THINK A BOND INVESTOR SHOULD -- SOMEONE SHOULD HAVE SOME INCOME WITH SOME CAPITAL UPSIDE THERE. BUT THERE ARE SO MANY GOOD OPPORTUNITIES. AND YOU KNOW, THE FACT THAT CHINA HAS STARTED TO ACTUALLY PERFORM BETTER AND POTENTIALLY

BROKEN OUT, THAT'S AGAIN A BRENT SIGNAL. THAT'S BEEN A BIG DRAG THE LAST FEW YEARS. >> HOW ABOUT THAT? DO YOU FEEL LIKE THE MOVE THAT HAPPENED IN CHINA IS A GAME CHANGER ON HOW WE SHOULD VIEW WHAT THE POTENTIAL TURN IN THEIR ECONOMY MEANS FOR THE OVERALL MARKETS? I MEAN COULD WE'VE SEEN CERTAIN STOCKS GET A NICE BOOST. SOME OF THE LUXURY GOODS COMPANIES. LVMP, ESTEE LAUDER, ET CETERA. WHAT ABOUT THE BIGGER PICTURE? >> YOU KNOW, IT'S HARD TO TELL WHAT'S A TRADING RALLY VERSUS A BOTTOM FOR CHINA. I SPENT SOME TIME TALKING TO OUR TECHNICAL STRATEGIST. HE THINKS THIS IS A BONA FIDE BREAKOUT, AND IT IS COMING ON

What stocks do in the next month is a 'coin flip' due to election, says Fundstrat's Tom Lee

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Morgan Stanley downgraded the auto sector, including General Motors, which fell 5%.

Tom Lee from Fundstrat believes the Fed's easing cycle will have a positive impact on the market in the long term, but the next month is uncertain.

The upcoming election in 40 days is causing wealth managers to hesitate in committing capital, potentially delaying the post-Fed bump for stocks.

November and December typically see strong market rallies, especially after a positive first half of the year.

Investors are currently optimistic about the economy's resilience and the Federal Reserve's actions, despite a high number believing we are already in a recession.

The upcoming Core PCE report is expected to provide further evidence of easing inflation, potentially shifting investor sentiment towards a soft landing.

The speaker is cautious about making a strong case for immediate investments due to current valuations and a recent market move.

They note a decrease in margin debt, indicating investor deleveraging, and express more confidence in the market's attractiveness three to six months out.

While bullish for year-end, they are uncertain about the market's behavior leading up to Election Day and believe things will look better after that.

Tech's Resilience and the Russell's Choppy Bottom

Tech stocks are holding their own, with recent performances from companies like NVIDIA and Tesla, while other stocks are showing signs of life.

The Russell has experienced profit-taking after a big week, but the choppy movement is typical of market bottoms.

Despite the volatility, there is a strong fundamental case for owning small caps, and the Russell's performance is expected to lead to a multi-year uptrend.

The Impact of China's Economic Performance on Global Markets

Bond investors seek income and capital upside, while equities offer inflation protection, capital appreciation, and positive surprises.

China's improving performance may signal a potential turnaround for its economy, impacting global markets and boosting certain stocks, especially luxury goods companies.

The current rally in China is debated as either a trading rally or a genuine breakout, indicating a possible shift in market dynamics.