Investor anxiety rising amid US election and earnings season, RBC says

Investing.com -- Sentiment is retreating and anxiety increasing among investors as markets gear up for Tuesday's crucial US presidential election and assess the quarterly earnings season, according to analysts at RBC Capital Markets.

In a note to clients on Monday, the analysts led by Lori Calvasina pointed to weekly data from the American Association of Individual Investors which showed a decrease in bullish feeling. So-called "fear" gauges, including the closely-watched VIX volatility index, also ended October at elevated levels, they added.

"We think the upcoming election and concerns about the possibility of a contested outcome are one reason for the recent moves higher in these indicators. We will be keeping a close eye on these after election day for signs of rising, peaking, or easing anxiety," the analysts said.

At the same time, recent commentary from corporate names posting their latest results suggested that the "tone seems more downbeat" partly due to the election clouding the broader outlook, the analysts noted.

"For the most part, companies are continuing to emphasize the uncertainty associated with the event and its contribution to more cautious customer behavior," they said.

The race between Donald Trump, the Republican Party candidate, and Democratic rival Kamala Harris is extremely close, with the two neck-and-neck in several key battleground states that may sway the outcome of the vote.

A New York Times/Siena poll suggested that Harris was clinging to leads in Nevada, North Carolina, Georgia and Wisconsin, while Harris and Trump were even in the major swing states of Pennsylvania and Michigan. In Arizona, Trump holds a three percentage point advantage.

Meanwhile, the RBC analysts flagged a "disappointing feel" around the parade of recent quarterly corporate returns. Within the benchmark S&P 500 , 72% of companies who have reported better-than-expected earnings per share, slightly below the prior quarter, although revenue beats have risen.

Overall earnings sentiment "remains negative," the analysts said, citing data which indicated there have been slightly more reductions to per-share income estimates than upward revisions. Many executives have also raised concerns over lingering interest rate pressures, higher costs and a mixed economic picture, they noted.

"There are still a lot of companies left to report, and we’ll be curious to see if the tone changes after this week once we are past the US election and the next Fed[eral Reserve] meeting," they said. The Fed is expected to cut rates by a quarter point after its latest two-day policy meeting on Thursday.

"We’re also going to be very interested in seeing if, in January and February once [fourth-quarter] reporting season starts, companies highlight weak October trends given all the angst that seems to be in place at the moment," the analysts said.

Source: Investing.com