October Review: equities avoid election fright so far

Horacio Coutino, multi-asset strategist

Q3 Earnings in focus

As earnings season progresses, S&P 500 companies have demonstrated a mixed performance relative to expectations. While a number of companies have reported positive earnings surprises, these have been counterbalanced by significant downward revisions to earnings per share (EPS) estimates for several companies across three sectors. Consequently, the index currently reflects higher earnings for Q3 compared to the end of last week, but lower earnings relative to the end of the quarter. Despite this, the index has achieved y/o/y earnings growth for the fifth consecutive quarter.

However, the S&P 500 is also reporting its weakest y/o/y earnings growth rate since Q2 2023, with a decline of 4.2%. As of 25^th October, according to Factset, 37% of S&P 500 companies have reported their actual Q3 2024 results, with 75% surpassing EPS estimates. This figure is lower than the 5-year average of 77% and equal to the 10-year average of 75%.

The blended earnings growth rate for Q3 currently stands at 3.6%, up from last week’s 3.0%, hbut it is lower relative to the 4.3% growth rate reported at the end of the quarter (30^th September). If this 3.6% figure holds, it will represent the fifth consecutive quarter y/o/y earnings growth for the index. However, it will be the index's lowest y/o/y earnings growth since Q2 2023, when it was -4.2%, and it will be 1.0 percentage points lower than last quarter at 4.6%.

Since 30^th September, companies have been reporting earnings 5.7% above expectations. This surprise factor is below the 5-year average (+8.5%), and 10-year average (+6.7%). 

The Financials sector (+9.4%) leads in positive aggregate difference between actual and estimated earnings, followed by Consumer Discretionary (+8.9%) and Utilities (+7.1%).

Within the Financials sector, Capital One Financial exceeded expectations, reporting $4.51 EPS compared to an estimated $3.77, while KKR achieved $1.38 EPS against a projected $1.20. Similarly, Northern Trust Corporation surpassed estimates with $2.22 EPS versus $1.74, and Raymond James Financial delivered $2.95 EPS against an anticipated $2.41.  These strong results collectively drove an increase in the sector's blended earnings growth rate from +4.8% to +5.7% since 30^th September.

In the Consumer Discretionary sector, General Motors reported $2.96 EPS, exceeding the estimated $2.38, and Tesla posted $0.72 EPS against a projected $0.59. Consequently, the sector's blended earnings growth rate rose from 0.2% to +1.7% over the same period.

Regarding revenue, 59% of S&P 500 companies have surpassed earnings estimates, below the 5-year average of 69% and the 10-year average of 64%. Aggregate revenues are 1.2% above estimates, a figure significantly lower than the 5-year average of 2.0% and the 10-year average of 1.4%.

Positive revenue surprises from companies within the Health Care and Consumer Discretionary sectors have been the primary drivers of the index's increased revenue growth rate since 30^th September, contributing +2.9% and +2.3%, respectively. Conversely, the Utilities sector experienced the largest negative difference between actual and estimated revenues, at -5.6%. Collectively, the blended revenue growth rate for the second quarter is currently 4.9%. This figure represents an increase from the 4.7% rate recorded at the end of the quarter.

The forward 12-month price-to-earnings (P/E) ratio is 21.7x, surpassing both the 5-year average of 19.6x and 10-year average of 18.1x. However, this figure remains below the 21.6x recorded at the end of the second quarter (30^th September).

169 S&P 500 companies are scheduled to report their second-quarter results the week of 28^th October.

S&P 500 Earnings Growth: 3.6%

Eight of the eleven sectors have reported or are projected to report y/o/y earnings growth for Q3 2024. The Information Technology and Communication Services sectors lead this growth. Conversely, Energy and Industrials lead the y/o/y decline in earnings.

Information Technology stands out with the highest y/o/y earnings growth rate among all sectors, at +16.0%. Five of the six industries within the sector are demonstrating positive y/o/y earnings growth. Specifically, Semiconductors & Semiconductor Equipment leads with a 38% increase, followed by Technology Hardware, Storage, & Peripherals at 14%.  Electronic Equipment, Instruments, & Components, and Software both exhibit a 7% rise, while IT Services shows a modest 3% gain. In contrast, the Communications Equipment industry is projected to experience a 16% y/o/y decline in earnings. At the company level, unsurprisingly again, Nvidia (EPS $0.74 vs. $0.40) is the largest contributor to the S&P 500's earnings growth, and its exclusion would lower the blended y/o/y earnings sector growth rate to +8.7%.

Communication Services boasts the second-highest y/o/y earnings growth rate among all eleven sectors at +11.5%. This strong performance is driven by positive results across three key industries: Wireless Telecommunication Services leads with a +41% increase, followed by Entertainment at +34%, and Interactive Media & Services at +16%. However, the sector's overall growth is tempered by declines in two industries: Media, with a -5% decrease, and Diversified Telecommunication Services, showing a -4% contraction.

A closer examination reveals that Alphabet (EPS $1.84 vs. $1.55 in Q3 2023), T-Mobile (EPS $2.61 vs. $1.82), and Meta Platforms (EPS $5.21 vs. $4.39) are significantly influencing the sector's upward trajectory. Excluding these companies would considerably reduce the sector's blended y/o/y earnings growth rate from +11.5% to +2.3%.

Utilities is poised to attract significant market attention in the coming days, with 94% of its constituent companies scheduled to release earnings reports between 28^th October and 8^th November. Currently, the sector is demonstrating solid performance, registering the sixth-largest y/o/y earnings growth rate among the eleven sectors in the S&P 500 for Q3 2024, at +3.4%.

This growth is broadly supported across the sector. Four of the five industries within Utilities are reporting, or are anticipated to report, positive y/o/y earnings growth: Water Utilities leads with an +11% increase, followed by Gas Utilities at +7%, Multi-Utilities at +6%, and Electric Utilities at +4%. The exception is the Independent Power & Renewable Electric Producers industry, which is projected to experience an -18% decline.

Analyst forecasts indicate continued earnings growth for the sector over the next five quarters. Projections for Q4 2024 through Q4 2025 show consistent growth, with anticipated rates of +12.6%, +6.2%, +4.3%, +11.1%, and +7.5%, respectively.

Energy experienced the most substantial y/o/y earnings decline of all sectors, at -27.3%. In terms of industry performance, three of the four sectors within this industry are anticipated to experience a y/o/y decline in revenues: Oil & Gas Refining & Marketing (-83%), Oil & Gas Exploration & Production (-19%), and Integrated Oil & Gas (-15%). Conversely, Oil & Gas Equipment at +13% and Oil & Gas Storage and Transportation at +12%, are reporting y/o/y growth in earnings.

The Energy sector will command significant market attention this week with the release of ExxonMobil and Chevron's earnings reports on 1^st November. The sector's y/o/y earnings decline of -27.3% is primarily attributed to lower oil prices. The average price of oil in Q3 2024 was $75.27 per barrel, reflecting an 8% decrease compared to the Q3 2023 average of $82.22.

It is noteworthy that the Energy sector has also undergone the most substantial decline in earnings across all sectors since the end of the third quarter. On 30^th September, the estimated earnings decline for the sector in Q2 stood at +13.3%. However, current reports reveal a y/o/y blended earnings decline of -27.3%. This significant downward revision in earnings is primarily attributed to analysts lowering Q3 earnings estimates for prominent companies in the sector since 30^th June, including Marathon Petroleum (to $2.25 from $0.98), Chevron (to $2.76 from $2.43), and ExxonMobil (to $2.00 from $1.89).

Looking ahead, analysts anticipate a return to earnings growth for the sector beginning in Q2 2025. However, Q4 2024 and Q1 2025 are projected to show continued declines of -19.9% and -3.0%, respectively. From Q2 2025 onward, the outlook is more positive, with projected growth rates of +0.4% in Q2, followed by more robust increases of +23.5% in Q3 and +18.9% in Q4.

The Industrials sector faces headwinds, reporting the second-largest y/o/y earnings decline among the eleven sectors at -11.0%. This decline is evident across several industries within the sector. Aerospace & Defense is experiencing the most significant contraction at -62%, followed by Passenger Airlines at -21% and Machinery at -15%. However, the sector also demonstrates areas of strength, with six industries exhibiting y/o/y earnings growth. Ground Transportation leads with a +23% increase, followed by Construction & Engineering at +22% and Commercial Services & Supplies at +12%.

It is important to note the considerable influence of Boeing on the sector's overall performance. The company reported a significant loss of -$10.44 per share compared to -$3.26 in the previous year, making it the largest contributor to the sector's earnings decline.  If Boeing were excluded, the sector's blended y/o/y earnings decline would significantly improve from -11.0% to a marginal -0.1%.

S&P 500 Net Profit margin: 12.0%

The blended net profit margin for the S&P 500 in Q3 2024 is projected to be 12.0%, lower than the previous quarter's net profit margin of 12.2%, and the year-ago net profit margin of +11.6%, but above the 5-year average of +11.5%.

Sector-specific analysis reveals that three sectors are experiencing a y/o/y increase in their net profit margins in Q3 2024 compared to Q3 2023. Leading this growth is Information Technology with a 0.8 percentage point increase (24.7% vs. 23.9%). Conversely, seven sectors are reporting y/o/y declines in their net profit margins led by Energy with 2.5 percentage points (8.1% vs. 10.6%). Consumer Staples maintained a consistent net profit margin of 6.3% compared to the same quarter in the previous year.

Furthermore, six sectors are reporting Q3 2024 net profit margins exceeding their 5-year averages, with Consumer Discretionary (9.3% vs. 6.7%) demonstrating the most significant increase. In contrast, five sectors are reporting Q3 2024 net profit margins below their 5-year averages, most notably the Health Care (7.7% vs. 9.7%).

The S&P 500 reaction to earnings

The market is reacting more strongly than usual to earnings surprises from S&P 500 companies. Both positive and negative surprises are having a greater effect than average on stock prices.

Companies exceeding earnings expectations have seen an average price increase of +1.1% in the two-day window preceding and following the earnings release. This is a slightly higher favourable reaction than the 5-year average price increase of +1.0% observed during this timeframe for companies with positive surprises.

Similarly, companies undershooting earnings expectations have experienced an amplified negative response. On average, their shares prices were -3.6% in the two-day window surrounding the earnings release. This is larger than the 5-year average of -2.3% witnessed for companies with negative surprises.

The S&P 500 is +1.26% since this earnings season began on 8^th October.

Global backdrop

October saw a varied performance across major global equity indices, primarily driven by a significant rotation from the Magnificent Seven and the Information Technology sector towards those that had underperformed earlier in the year. Notably, sectors like Financials and Communication Services outperformed, influenced by strong Q3 performance reflected this earnings season. Performance diverged between major US and European indices, with the former ending the month in positive territory while the latter experienced declines. Additionally, October witnessed the market solidifying its expectations of a decelerated pace of monetary easing by the Fed, following a fairly robust September nonfarm payrolls report released on 4^th October.

• According to the CME FedWatch tool, interest rate swaps have now priced in a 95.5% probability that the Fed rate will be set lower, in the target range of 4.50 - 4.75% at its 7^th September meeting. This contrasts with 25^th September pricing which assigned a 61.0% probability of a rate reduction to the target range of 4.25 - 4.50% on that date. Additionally, interest rate swaps have priced in a 4.5% probability of no change in policy.
• Yields have significantly increased across regions in October. The US 10-year yield was +42.2 basis points (bps) to 4.303%, while the 10-year German Bund was +26.1 bps to 2.396%. The spread between the two widened by 28.8 bps from 161.9 bps at the end of September to 190.7 bps.
• The US dollar strengthened in October. The US Dollar Index, at 104.10, was +3.23% MTD, while the YTD performance by 30^th October was +2.66%. The euro was -2.50%  MTD against the dollar, while Sterling was -3.12% MTD in October.

Regional breakdown

US

S&P 500 +0.89% MTD and +21.88% YTD
Nasdaq 100 +1.63% MTD and +22.14% YTD
Dow Jones Industrial Average -0.45% MTD and +12.06% YTD
Russell 2000 +0.14% MTD +10.16% YTD

Note: As of 5pm EDT 30 October 2024.

Source: Factset

Five of the eleven S&P 500 sectors experienced positive performance in October. Financials led the index's performance this month, at +3.82%, followed by Communication Services at +3.49% and Information Technology +2.66%. Conversely, Health Care and Consumer Staples underperformed at -3.95% and -2.80%, respectively. 

In October, as it did in September, the equal-weighted version of the S&P 500 has underperformed the benchmark by 1.52 percentage points MTD, yielding a -0.63% return compared to the S&P 500's +0.89%. The equal-weighted version has achieved a +12.82% YTD return, compared to the S&P 500's +21.88%.

Source: Factset

An analysis of the past five years (60 months) demonstrates that the October performance of major US stock indices has been subdued, all falling below their median monthly returns. The Nasdaq 100’s October performance ranks at the 45.7^th percentile, being the strongest among major US equity indices. Russell 1000's October performance follows closely ranking at the 44.0^th percentile, signifying that 34 out of the past 60 months have witnessed superior performance. The S&P 500's October performance of 0.89% ranks at its 38.9^th percentile, indicating that 37 months out of the past 60 have seen a stronger performance. Dow Jones Industrial Average’s negative performance (-0.45%) ranks at the 35.5^th percentile within the context of the past 60 months.

Europe

Stoxx Europe 600 -2.18% MTD and +6.79% YTD
Germany DAX -0.35% MTD and +14.96% YTD
FTSE 100 -0.94% MTD and +5.51% YTD
France CAC 40 -2.72% MTD and -1.52% YTD
Spain IBEX 35 -1.37% MTD and +15.97% YTD
MSCI Europe -1.99% MTD +6.64% YTD

Source: Factset

In October, the Stoxx Europe 600 displayed a negative performance across most of its sectors, with 14 of its 17 sectors in negative territory. Travel & Leisure emerged as the frontrunner, +2.99%, followed by Telecom +2.15% and Banks at +0.85%.

Conversely, Chemicals was -6.14%, while Technology declined -6.10%.

A comparative analysis of the Stoxx Europe 600 Equal Weight (EW) index reveals a contrasting picture. The EW index, which assigns equal weight to each constituent company, posted a -2.68% return in October, underperforming the standard Stoxx Europe 600's -2.18%. Moreover, its YTD performance stands at +5.03%, 1.76 percentage points lower than the European benchmark. This suggests a more evenly distributed decline across companies within the EW index, whereas the main index may have benefitted from the resilience of large-cap companies.

Source: Factset

A review of the past five years (60 months) of equity index performance indicates that European equity indices experienced a period of relative underperformance compared to US markets in October 2024.

Stoxx Europe 600's and the MSCI Europe October performance rank at the 23.7^th percentile, indicating that 46 months within this timeframe have yielded higher returns, exhibiting the weakest October performance. However in this time frame, MSCI Europe’s performance is 0.19 percentage points superior to Stoxx Europe 600’s. Germany's DAX and Spain’s IBEX 35, both demonstrated the strongest performance at the 35.5^th percentile, but Germany’s DAX at -0.35% was 1.02 percentage points superior to Spain’s IBEX 35’s -1.37% performance.

France’s CAC 40 resided above the 25^th percentile, at 25.4%, indicating that its performance in 45 of the past 60 months has been superior to that of October 2024. The UK’s FTSE 100, with a decline of -0.94% is positioned at the 30.5^th percentile, where 42 of the last 60 months it has demonstrated superior performance.

As of 29^th October, according to LSEG I/B/E/S data for the STOXX 600, Q3 2024 earnings are expected to increase 6.2% from Q3 2023. Excluding the Energy sector, earnings are expected to increase 11.2%. Q3 2024 revenue is expected to decrease 2.2% from Q3 2023. Excluding the Energy sector, revenues are expected to decrease 0.3%. Of the 83 companies in the STOXX 600 that have reported earnings by 29^th October for Q3 2024, 53.0% reported results exceeding analyst estimates. In a typical quarter 54% beat analyst EPS estimates. Of the 99 companies in the STOXX 600 that have reported revenue by 29^th October for Q3 2024, 44.4% reported revenue exceeding analyst estimates. In a typical quarter 58% beat analyst revenue estimates.

Financials, at 80%, is the sector with most companies reporting above estimates. At 27%, Utilities is the sector that beat earnings expectations by the highest surprise factor. In the Real Estate sector 67% of companies have reported below estimates. Additionally, Real Estate’s earnings surprise factor was the lowest at -6%. The STOXX 600 surprise factor is 9.9%. The forward four-quarter price-to-earnings ratio (P/E) for the STOXX 600 sits at 13.3x, below the 10-year average of 14.4x.

During the week of 4^th November, 87 companies scheduled to report Q3 earnings.

Analysts expect positive Q3 earnings growth from ten of the sixteen countries represented in the STOXX 600 index. Denmark (65.4%) and Switzerland (24.0%) have the highest estimated earnings growth rates, while Portugal (-27.2%) and Netherlands (-7.8%) have the lowest estimated growth.

5^th November: Low macro volatility meets high US political volatility

As the US presidential election moves ever closer, we examine the potential post-election policy shifts, and their potential effect on equities, in addition to a particular focus on tariffs.

Historically, equity market performance has been influenced by a multitude of factors, and election-related volatility tends to be short-lived. Empirical analysis reveals no significant correlation between the outcome of a political party's electoral victory and the performance of the S&P 500 index six months subsequent to the election date.

The potential for substantial market fluctuations primarily resides in the extremes of the distribution, particularly concerning trade and fiscal policies, as well as shifts in taxation and regulatory frameworks. The mitigation of these tail risks could potentially unlock greater upside potential in certain assets than currently anticipated.

US tariffs: playing with fire?

Former President Trump has indicated a strong intention to reform US trade policy by substantially raising tariffs on imported goods should he be re-elected. His proposed measures include a broad 10-percentage-point tariff on all U.S. trading partners, a 60-percentage-point tariff specifically on imports from China, and additional targeted tariffs on specific products and economies. If elected, Trump would likely be able to implement these tariffs unilaterally.

Tariffs exert a complex and multifaceted influence on macroeconomic conditions, impacting both economic growth and inflation through an intricate network of direct transmission mechanisms.

On the inflationary front, tariffs directly increase the prices of consumer goods and indirectly contribute to higher prices through elevated costs for intermediate inputs. Furthermore, the potential for tariffs to induce dollar appreciation introduces further complexity, with ramifications for import prices and interest rates that ultimately feed back into consumer sentiment. Finally, any dampening effect of tariffs on broader economic activity can indirectly suppress wage growth through the Phillips curve relationship.

With respect to GDP growth, tariffs impose downward pressure through several channels. First, by raising prices, tariffs diminish real personal income and consequently curb consumer demand, although this effect may be partially mitigated if tariff revenues are employed for tax reductions. Second, the elevated policy uncertainty associated with tariffs can discourage business investment, particularly in sectors with substantial exposure to international trade. Additionally, tariffs also distort trade patterns, incentivizing a shift away from imports towards domestically produced goods and potentially leading to trade reallocation that favours exporters less burdened by the tariffs. Finally, changes in financial conditions, such as interest rate fluctuations induced by tariffs, can generate spillover effects that further impede GDP growth.

While policy-related risks may be genuine, their impact on market pricing can be delayed. Furthermore, market perceptions of the prevailing policy agenda are fluid and susceptible to significant shifts.  It is also crucial to recognize that pre-election proposals may not faithfully reflect the post-election policy landscape.  

Elections that result in sweeping changes across branches of government amplify the potential for unexpected policy shifts following the election, as observed in 2016 and 2020. This inherent uncertainty creates a wider range of potential market reactions to the election outcome.

Potential effects on US Equities 

Notwithstanding the political landscape, a robust outlook for corporate earnings and the anticipation of further monetary policy easing suggest continued upside potential for equities. The resolution of political uncertainty following the election, irrespective of the outcome, may provide a near-term tailwind for equities, consistent with historical trends. However, the specific election outcome could catalyse rotations within equity sectors, favouring some industries over others.

A Republican administration coupled with a Republican-controlled Congress could usher in an environment conducive to pro-growth policies, including the potential for lower corporate tax rates. This scenario would likely prove supportive of US equities, with small-cap stocks and cyclical industries poised for outperformance. Furthermore, analysis of correlations with prediction markets suggests that regulation-intensive industries, such as Financials and Fossil fuels, could also outperform. However, the prospect of higher tariffs under this scenario could lead to outperformance of stocks characterised by high domestic revenue generation and supply chain concentration.

A Republican administration facing a divided Congress would likely encounter significant constraints on its ability to enact major legislative changes, including tax cuts. In this scenario, market focus would likely shift towards trade policy and regulatory actions, with US sector rotations mirroring those anticipated under a unified Republican governance scenario.

A Democrat administration with a Republican-controlled Congress may pursue tax increases, potentially exerting modest downward pressure on equity valuations. However, a continued emphasis on renewable energy and infrastructure investment through regulatory and legislative initiatives would likely favour stocks with exposure to these sectors. Furthermore, a reduced likelihood of significant tariffs under this scenario would benefit US companies with substantial international operations, as well as non-US equities. Importantly, unified Democrat governance could significantly reduce policy uncertainty, allowing equity investors to focus on the prevailing macroeconomic conditions.

Key sectors implications

Among the potential policy shifts following the US election, corporate tax reform has the greatest potential to directly influence company profits and stock prices. Former President Trump has advocated for a reduction in the US statutory federal corporate tax rate on domestic income from its current level of 21% to 15%, while Vice President Harris has proposed an increase to 28%. Vice President Harris has also put forth proposals to increase the tax rate on foreign-derived income and raise the minimum corporate tax rate.

Should such changes be enacted, they could significantly impact S&P 500 earnings per share (EPS). However, it is crucial to acknowledge that campaign proposals do not always translate into legislative reality. Furthermore, experience from the 2017 Tax Cuts and Jobs Act (TJCA) suggests that concrete legislative action will likely be necessary before the market meaningfully reprices equities to reflect corporate tax reform.

The enactment of the 2017 TCJA, which reduced the statutory federal tax rate on domestic income from 35% to 21%, triggered an immediate rally in the S&P 500. The magnitude of this initial market reaction was comparable to the ultimate boost in earnings that materialised because of the tax cuts.

Specifically, rising earnings expectations fueled a 10% increase in the S&P 500 during the two months surrounding the TCJA's passage (from late November 2017 through late January 2018). This gain is closely aligned with the eventual 12% rise in EPS observed in 2018, attributable to the TCJA's tax reductions, relative to the likely counterfactual growth under an unchanged tax policy.

The experience with the TCJA underscores a key insight: most investors tend to await legislative clarity before fully adjusting their portfolios to reflect shifts in tax policy. This cautious approach highlights the importance of concrete legislative action in driving sustained market reactions to potential tax reforms.

These four S&P 500 sectors are on the front lines of potential policy shifts:

Financials. The financial sector is particularly susceptible to policy shifts following the US election. Potential changes in key personnel at regulatory bodies like the Federal Reserve, Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) could significantly alter the regulatory landscape for banks.   

Several proposed rules, including the Basel 3 endgame proposal, late fee proposal, adjustments to liquidity requirements, and various market structure proposals, remain pending. Modifications to the leadership of these agencies could lead to substantial revisions or even the complete abandonment of these proposals.

Corporate tax rate adjustments also hold significant implications for the Financial sector.  Given that the vast majority of bank earnings are domestic and banks typically have fewer deductions compared to other sectors, their earnings are particularly sensitive to fluctuations in the corporate tax rate. Furthermore, changes to this rate could influence incentives for CapEx and investment, which are key drivers of corporate loan growth.

Health Care. Within the Healthcare sector, prescription drug pricing remains a prominent bipartisan concern. Both presidential candidates have committed to reducing drug costs through various measures, including expanding the scope of drugs subject to price negotiation and implementing Pharmacy Benefit Manager (PBM) reform to lower channel costs. Consequently, legislation aligned with the Lower Prices, More Transparency Act could potentially garner bipartisan support and pass irrespective of the election outcome.

For Democrats, implementing the existing drug pricing negotiation provisions within the Inflation Reduction Act (IRA) remains a priority. Conversely, a Trump administration could renew efforts to align US drug prices with lower prices observed in international markets, although the specific implementation mechanism remains unclear.

Industrials. The IRA and the CHIPS Act are poised to play a pivotal role in fueling the resurgence of US manufacturing. The IRA allocates nearly $400 billion in federal funding, including approximately $265 million in tax credits for clean energy production, manufacturing components, and electric vehicles (EVs). Simultaneously, the CHIPS Act incentivizes semiconductor manufacturing and supports over $400 billion in announced ‘Mega projects’, of which approximately $74 billion have commenced construction since 2021.

While potential policy changes surrounding these acts could influence the longevity of this nascent manufacturing boom, several factors suggest that the core elements of these initiatives will likely endure. Notably, four out of the five states leading this manufacturing resurgence (including Texas) are Republican-leaning (based on the 2020 election). This reduces the likelihood of a complete repeal of the IRA or the CHIPS Act. Furthermore, the implementation of tax credits is well underway, and any major alterations would necessitate an act of Congress. In the event of a partial repeal, Republican commentary has primarily focused on EVs and offshore wind, suggesting that the impact on other manufacturing sectors would be limited.

Energy. Within the Energy sector, key areas of focus include LNG policy and US oil supply. For US oil production, potential policy shifts that might restrict permitting and drilling on federal lands, particularly in areas like the New Mexico Permian Basin, are noteworthy. Nonetheless, the Biden Administration recently approved the final investment decision for ConocoPhillips' Willow Project in Alaska. Additionally, investors are closely monitoring the Department of Energy’s temporary suspension on permits for US LNG exports, hoping for a timely resolution.

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