In October, the Federal Reserve released its Beige Book, which revealed the current stable operation of the U.S. economy, dispelling traders' concerns about the macroeconomic situation; the U.S. election has become the main logic driving market trading. The earnings season for U.S. stocks is approaching, and tech stocks suffered a significant drop at the end of the month; the crypto market has become a safe haven amid the uncertainties of the election, with Bitcoin nearing its historical high, indicating that a new crypto bull market may have arrived.
For the U.S. economy, November is another month of mixed feelings: U.S. non-farm employment increased by 254,000 in September, exceeding expectations of 150,000, with a total upward revision of 72,000 jobs in August and July. The unemployment rate in September was 4.1%, lower than the expected 4.2%, while it was 4.2% in August. Average hourly wages in September grew by 4% year-on-year and 0.4% month-on-month, both exceeding expectations; Markit manufacturing PMI preliminary value was 47.8 (expected 47.5), reaching a two-month high, and Markit services PMI preliminary value was 55.3 (expected 55), also a two-month high. The steady performance of economic data is accompanied by high inflation: U.S. CPI rose by 2.4% year-on-year in September, slightly slowing from the previous value of 2.5%, but exceeding the expected value of 2.3%; core CPI rose by 3.3% year-on-year, slightly exceeding expectations and the previous value of 3.2%. This inflation data directly suppressed the debate on whether to cut rates by 25 or 50 basis points in November: almost everyone is betting on a 25 basis point cut in November, while a small fraction is betting on no cut, and calls for a 50 basis point cut have completely disappeared.
Source: fedwatch tool
The current state of the U.S. economy and the moderate reduction in inflation have basically indicated that the U.S. economy is landing softly, and the risks from the macroeconomic perspective are gradually fading from traders' sight. The Federal Reserve's latest Beige Book released in October mentioned that since early September, economic activity in most regions of the U.S. has not changed much, and inflationary pressures continue to ease. Overall, the Beige Book paints a picture of 'the economy operating smoothly, inflation slowing down, and some economic indicators needing improvement,' essentially characterizing the U.S. economy as moving towards a soft landing. But is it just that? The Beige Book also repeatedly mentioned the uncertainty of the November U.S. election, considering it one of the factors causing consumers and businesses to postpone investment, hiring, and procurement decisions. Currently, the support rates for U.S. Vice President and Democratic presidential candidate Harris and Republican presidential candidate Trump are very close, which may lead both parties to use unexpected means in their power struggle.
Overall, the U.S. economy has been characterized by the Federal Reserve as a soft landing, and the economic impact on the market is generally expected to be positive, meaning political issues have become the main reason determining the short-term market trend. Therefore, attention should be paid to the temporary risks in trading brought about by political issues. However, it was unexpected that Halloween also prepared a 'prank'.
Source: S&P 500 Index heatmap.
Following last month's record high for the Dow Jones, everyone is looking forward to the Nasdaq index catching up, especially anticipating that the stock king Nvidia (NVDA) will continue to break historical highs amid numerous bearish voices on the 'AI bubble'.
However, unexpectedly, the U.S. stock market suffered a sharp decline on the last trading day of October, with all three major indices closing lower, and tech stocks generally slid. The Dow fell by 0.90%, the Nasdaq dropped by 2.76%, and the S&P 500 index also fell by 1.86%. Apple dropped by 1.82%, Nvidia by 4.72%, Microsoft by 6.05%, Google C by 1.96%, Amazon by 3.28%, Meta by 4.09%, and Tesla by 2.99%. Both the S&P and Nasdaq recorded their largest single-day declines since September 4, wiping out the gains made in October. As Steve Sosnick from Interactive Brokers said, 'Halloween brought many investors tricks instead of treats. The market mentality seems to be shifting from enthusiasm for anything AI-related to investors wanting companies to deliver returns on their massive spending.'
However, putting aside market sentiment, from the latest earnings reports of the U.S. stock market 'seven sisters', Tesla (TSLA) performed remarkably, surging 21.92% on October 24. The earnings report showed that Tesla's revenue in the third quarter increased by nearly 8% year-on-year, still below expectations, but the profit was a pleasant surprise, with gross margin rising by 195 basis points year-on-year to 19.8%, and the gross margin for the automotive business exceeding expectations, rising to 17.1%. Revenue from 'selling carbon' increased by over 30% year-on-year, reaching a record high for the quarter. At the same time, the computational workload for AI training in the third quarter grew by over 75%. During the quarter, Tesla deployed a cluster of 29,000 Nvidia H100 chips at its Texas Gigafactory and conducted training, with an expected capacity of 50,000 H100 chips by the end of October. AI has also become one of the core driving forces behind Tesla's stock price.
This month, in addition to the AI narrative, a new interesting change emerged in the U.S. stock market, where political factors have overtaken macroeconomic factors as the core trading logic. Interestingly, Trump's media technology (DJT) surged nearly 250% this month, which seems to indicate that at least in the U.S. stock market, traders are generally betting on Trump's victory. This is also a vote made with real money, and the 'Trump trade' has become the main theme of the current U.S. stock market. Trump's current policy inclination is quite clear, such as increasing tariffs on imported products from other countries to protect domestic manufacturing. Therefore, traders are generally more optimistic about U.S. domestic companies, which is one of the reasons why local tech giants continue to soar.
This October, the U.S. stock market is on the eve of the election and coincides with the earnings season. The combination of these two factors further intensifies the degree of market volatility. Meanwhile, stock markets in Japan, France, Germany, and other countries are generally in a 'lying flat' state, quietly waiting for the turning events brought about by the U.S. election.
After seven months of sideways movement, Bitcoin has finally welcomed a decent bull market, nearing its previous high. Especially with the Bitcoin ETF in the U.S., October's 'Uptober' has seen a period of concentrated inflows.
From the beginning of his election campaign, Trump has played the 'crypto card', steadfastly courting the votes of crypto investors. In July 2024, he revised the Republican Party's official platform to include the rights to 'mine Bitcoin' and 'self-custody digital assets', boldly advocating for transactions without 'government oversight'. The Democratic Party has also gradually relaxed its hostility towards cryptocurrencies, passing Bitcoin and Ethereum spot ETFs during Biden's term. Although Harris is not as outspoken as Trump on cryptocurrency issues, her campaign team has attempted to attract support from the crypto community in the later stages, expressing a willingness to explore regulatory frameworks that do not stifle innovation. It can be said that regardless of the outcome of this U.S. election, cryptocurrencies will usher in a new round of development. Therefore, cryptocurrencies have become a 'promised land' for capital seeking refuge before the election, which is almost a clear logic. Historically, the market often experiences a phase of increased volatility before elections, with investors' risk-averse sentiment and uncertainty about policies leading to frequent fluctuations in crypto market prices. For example, during the 2020 U.S. election, Bitcoin's price experienced significant fluctuations within weeks.
However, overall, in the absence of on-chain narratives, political factors have become the main driving force. The integration of Bitcoin with the traditional world has spread from the financial sector to the political arena, officially becoming a crucial member of the world order.
It is worth mentioning that Ethereum's performance is quite poor compared to Bitcoin. For the past two months, Ethereum has been in a sideways trend. From the ETF data, its inflows and outflows have not shown significant fluctuations.
One of the important reasons for Ethereum's current weakness is the siphoning effect from other public chains like Solana. The trend of 'meme trading' is currently hot in the crypto community, and Ethereum is not the main battlefield for memes. The U.S. election has also led to the emergence of numerous meme coins featuring Trump on the Solana chain, which has drained a lot of funds from Ethereum. This temporary community factor cannot determine Ethereum's long-term trend. After the U.S. election, when the meme hype subsides, Ethereum may have the chance to emerge from the shadows and welcome back the oversold funds.
As concerns about the economic situation fade, the market has returned to the AI main narrative. Although the U.S. election has many investors waiting for its outcome, the crypto market has unexpectedly become the optimal choice for investment at this moment. This may be a destined outcome, as Bitcoin is indeed a higher-quality investment asset, and more and more people will notice its safe-haven attributes. With the U.S. election approaching and coming to an end, as the global macro situation gradually becomes clearer, the market may re-enter the AI main narrative, and the crypto market is expected to remain active, possibly welcoming a resurgence of the 'dual rise of stocks and coins' seen in the first half of the year.
Written by: Amanda HU, Chief Researcher at R3PO
