Politics, policy cast spell on markets

Hillary and Donald. And Janet, too. Throw in Klaus Kleinfeld, CEO of aluminum maker Alcoa, and what you have is a market spellbound by the presidential election, the Federal Reserve’s next policy move on interest rates and the kickoff to the third-quarter earnings season.

“We expect a contentious election and challenging earnings season (that) will keep most of us on our toes in the month ahead,” Gina Martin Adams, equity strategist at Wells Fargo Securities, told clients in a note.

Election angst surrounds the tight race for the White House between Democrat Hillary Clinton and Republican Donald Trump. The rivals square off in Round 2 of the presidential debate season Sunday in St. Louis.

Janet Yellen also plays into the storyline. While the Fed held off on hiking rates at its meeting in September, some Fed members are again sending out hints that a rate increase could be forthcoming  this year, most likely when the it meets for the final time of 2016 in December. Low rates have been a key driver of stocks in the bull run, and there’s a debate as to whether the economy and stock market can withstand a quarter-point rate rise.

Earnings season also will be critical. The S&P 500 stock index is in danger of posting negative profit growth for the fifth consecutive quarter, Thomson Reuters says. An upside surprise would boost sentiment at a time when stocks are overvalued relative to earnings. Alcoa kicks off earnings season Oct. 11.