US equities slipped last week as mixed corporate results and anticipation of the upcoming election tempered market sentiment.

The S&P 500 had seen several weeks of growth, so a slight reversal was to be expected. This one was relatively mild, with the index dropping by just under 1%. Contributing to this were a few large companies.

McDonalds fell 5% in a day after an E. coli case was reported at one of its restaurants (later traced back to a supplier). Apple’s share price also dipped after an analyst said orders for the iPhone 16 were not as strong as expected. Although Apple ended the week down by only 1.5%, its large size meant it had a notable impact on the wider index.

It was not all one-way traffic though. For example, Tesla shares made over 20% gains after a strong set of results.

Outside company-specific issues, the Federal Reserve released its latest temperature check on the economy in its October Beige Book. It reported a combination of generally moderating inflation and improving employment, reinforcing the belief that the Fed is likely to opt for a 0.25% reduction in interest rates at its next meeting.

This meeting will take place very much in the shadow of next week’s election, which will name a new president and potentially shift the majority in one or both Houses of Congress.

Meanwhile, Japan saw a change in its political structure over the weekend as a snap election resulted in the ruling Liberal Democratic Party (LPD) losing its majority in the lower house.

The LPD and its junior coalition partner Komeito won 215 seats, short of the 233 needed for a majority, though they remain the largest bloc. Prime Minister Shigeru Ishiba, who took office a month ago, now faces a delicate balancing act to find more coalition partners.

The LPD has governed Japan for over a decade, and most of its post-War history, so the election may prove something of a watershed moment for the country.

Martin Hennecke, our Head of Asia & Middle East Investment Advisory, says regardless of political leadership, Japan’s high sovereign debt burden and the state of the economy might make significant interest rate increases difficult if not impossible.

He adds: “Persistently low interest rates and a weak yen have resulted in negative real interest rates. This may actually support the market as Japanese investors grow concerned about rising inflation eroding the purchasing power of their large cash holdings. They may increasingly turn to equities simply as a wealth preservation strategy. Valuations still seem reasonable currently from a historical perspective as well as relative to global markets.”

Turning to the UK, investors are eagerly awaiting this week’s budget. Several measures have been heavily speculated about, including an increase in National Insurance contributions for employers and changes to so-called “wealth taxes”.

The Government is expected to revise its fiscal rules, creating more short-term fiscal headroom and allowing for additional capital spending options throughout this Parliament. However, sizeable tax rises – within the boundaries of what has been ruled out – are still to be expected.

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“We need to answer to the people’s criticism. That is how I will take responsibility for the loss of the election.”

Japan’s Prime Minister, Shigeru Ishiba, on the results of the election over the weekend.