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Explosive Stock Market Records as Gold Shines Bright

A relatively quiet start to the week for global markets leaves Wall Street pondering the sustainability of recent stock market records, with the S&P 500 nearing 6,000 as corporate earnings pour in, and the upcoming U.S. presidential election looms. Meanwhile, gold — a traditional safe haven — has reached new highs, reflecting the hedged sentiment around geopolitical and electoral risks that color the booming U.S. economy.

U.S. Stock Market Records Amid Rising Gold Prices

The combination of a risk-loving rally in U.S. equity markets, alongside new stock market records, signals that investors are cautiously hedging their bets. Despite robust economic growth, concerns around rising U.S. budget deficits and future fiscal policies are evident. The U.S. budget deficit for fiscal year 2024 grew by 8% to $1.833 trillion, the highest outside of the COVID era, while federal debt interest surpassed $1 trillion for the first time.

External factors are also contributing to uncertainty. According to the Committee for a Responsible Federal Budget, if Republican candidate Donald Trump's plans are implemented, the U.S. could see $7.5 trillion in new debt, more than twice the amount under Democratic candidate Kamala Harris’s $3.5 trillion proposal. This looming debt crisis could impact stock market records as the election approaches.

U.S. Treasury Yields and Earnings Season Reflect Stock Market Records

U.S. 10-year Treasury yields hovered near 2.5-month highs at 4.12% on Monday, despite expectations of another quarter-point interest rate cut from the Federal Reserve. The Atlanta Fed’s "GDPNow" model predicts growth exceeding 3.4%, and the U.S. economic surprise index is at its highest in six months, adding to the positive sentiment around stock market records.

While earnings reports from 71 S&P 500 companies show 83% beating expectations, profit growth estimates have dipped slightly. Nevertheless, revenue growth remains strong, and analysts expect double-digit profit expansions to resume next quarter. Major updates this week include Tesla's quarterly earnings, which will likely grab headlines mid-week and influence stock market records.

China’s Economic Slowdown and Impact on Stock Market Records

In global markets, China remains a point of concern. On Monday, the People's Bank of China cut lending rates, with the one-year loan prime rate dropping from 3.35% to 3.10%, and the five-year rate cut to 3.6%. However, the property sector continues to decline, with new home prices falling at the fastest rate since May 2015. Despite marginally better-than-expected GDP and industrial data released last Friday, the historic economic slowdown persists and impacts global stock market records.

Hong Kong’s Hang Seng index fell over 1% on Monday, while mainland Chinese stocks posted small gains. The yuan also weakened slightly in offshore markets following the rate cuts, reflecting investor uncertainty about China’s economic recovery and its effect on stock market records.

Oil Prices and European Markets Under Pressure Amid Stock Market Records

In the U.S., crude oil prices remained under $70 per barrel on Monday, reflecting an annual loss of 22%. Energy markets continue to be subdued despite geopolitical risks and supply disruptions, which could indirectly influence stock market records. European stocks also opened the week marginally lower, with investors awaiting key earnings updates from German software giant SAP, which accounts for 15% of Germany's DAX index.

The broader economic outlook remains mixed, with German producer prices falling 1.4% year-on-year in September, primarily due to lower energy costs. This has added pressure on the European Central Bank (ECB) to further cut interest rates, with inflation still undershooting its target and weighing on stock market records.

Global Economic Outlook and U.S. Stock Market Records

Later this week, finance officials will gather in Washington for the annual IMF-World Bank meetings, with ECB President Christine Lagarde scheduled to speak. Investors will be closely watching the IMF's latest World Economic Outlook report, as well as flash business surveys from major economies for October to assess potential risks to stock market records.

Key U.S. developments to watch later on Monday include corporate earnings from Nucor, WR Berkley, and Alexandria Real Estate Equities, as well as the U.S. Treasury’s sale of 3- and 6-month bills. Additionally, speeches from several Federal Reserve officials, including San Francisco Fed President Mary Daly and Dallas Fed President Lorie Logan, could offer further insights into the central bank's future monetary policy and its effect on stock market records.