Peter Cardillo expects market volatility following the US midterm elections, especially if Democrats take control of the Senate. He said, "the focus is likely to return to the artificial intelligence trade soon after." Investors should watch for a rotation into blue-chip stocks while crude oil prices test 52-week highs.
Markets could see an initial bout of volatility following the US midterm elections, particularly if Democrats manage to take control of the Senate, but the focus is likely to return to the artificial intelligence trade soon after, according to Peter Cardillo, Chief Market Economist at Spartan Capital Securities.
Speaking to NDTV Profit, Cardillo said markets are already factoring in a potential blue wave, with the key question being whether Democrats can secure control of the Senate. If they take control of both the House of Representatives and the Senate, President Donald Trump's policy agenda could slow considerably, potentially leading to legislative gridlock.
While such an outcome could trigger an initial negative reaction, Cardillo believes the impact may be short-lived. He expects markets to return to assessing whether the artificial intelligence trade can sustain its momentum and deliver on the expectations built into valuations.
Blue-Chip And Value Stocks Could Outperform
Cardillo expects the rotation across market segments to continue, with a possible divergence between blue-chip and value stocks and riskier technology counters.
He pointed out that the Nasdaq has entered correction territory multiple times, reflecting the pressure on technology stocks. The trend of investors moving between different market segments, which has been visible over the past month, could continue amid elevated volatility.
Crude Oil May Test 52-Week Highs Before Falling
On crude oil, Cardillo expects prices to remain elevated as long as the ongoing war continues to disrupt shipments and the movement of supplies to their destinations.
He said crude oil could move towards its 52-week highs in the near term, given the continuing geopolitical uncertainty. While Trump has indicated that the war could end after the midterm elections, Cardillo said there has been little meaningful change in energy prices so far, with US gasoline prices also hovering near their highs.
However, he expects oil prices to decline sharply once the conflict is resolved. According to Cardillo, the global market has sufficient oil supplies, and the primary concern is the ability to transport and deliver them.
He sees the possibility of crude oil falling below $60 a barrel and potentially slipping under $50 once the war ends. However, he expects prices to make another move towards their 52-week highs before that correction materialises.