Well, a lot, actually. A sometimes tumultuous third-quarter earnings season isn’t over yet. A packed calendar of economic data in the coming weeks includes key readings on inflation and the labor market. In addition, the US midterm elections could result in Democrats losing control of one or both chambers of Congress. MarketWatch spoke with several market gurus about what investors should be looking out for and what this might mean for their portfolios.

Inflation and jobs data could prompt Fed to keep rates ‘high for longer’

The Fed may seek another 50 basis point rate hike at its December meeting, but any sign that inflation is not trending toward the central bank’s target could send stocks reeling and Treasury yields to jump, they said market strategists. Indeed, stocks initially rallied after the Fed’s policy statement on Wednesday signaled that a slower pace of rate hikes is on the way. However, indices closed sharply lower on the day after Chairman Jerome Powell, at his press conference, said it was premature to “pause” rate hikes and that the final – or maximum – interest rate was likely to be higher than what policymakers expected in September. Rex Nutting: How Powell Derailed the Fed’s Wandering Message and Ruined Markets Although headline inflation has eased from its fastest pace in 40 years, core prices are still accelerating at a dismal pace and wage growth remains “mixed,” Powell said. “A lot of what the Fed ultimately does will depend on what happens with inflation,” said Jack Ablin, founding partner and chief investment officer at Cresset Capital. The consumer price index for October is expected to be released on November 10, followed by the personal consumption expenditure index, the Fed’s preferred barometer of inflationary pressures, on December 1. However, there is still much to learn about inflation from the October jobs report due out on Friday, including the measure of average hourly earnings. “I think certainly the payroll number is important and it all comes back to what it means for inflation,” Ablin said. Bottom line: Any further indication that the Fed will need to keep interest rates “high for longer” to fight inflation could exacerbate weakness in both stocks and bond prices, which move inversely to yields, as seen so far this year. “Inflation’s increased momentum sets a high bar for the Fed to end the current rate-hiking cycle and an even higher one to begin cutting rates,” said Bill Adams, chief economist at Comerica Bank.

Intermediate terms and the return of deadlock

Even if Democrats manage to hang on to both houses of Congress, investors will likely be relieved once the US midterm elections are over on Tuesday. “We often see stocks rally after an election regardless of the outcome,” said Callie Cox, US investment analyst at eToro. See: What interim terms mean for stock market’s ‘best 6 months’ as favorable calendar extension begins Some investors believe a Republican re-election of the House or Senate could be bullish for stocks, said Octavio Marenzi, CEO of market-focused management consultancy Opimas. According to Marenzi, a divided Congress would likely lead to more gridlock, which in turn would mean less inherently inflationary fiscal spending. “The markets may look favorable for the Republican takeover of at least one of the houses [of Congress],” he said.

Profits remain significant

Corporate earnings growth has held up surprisingly well so far this year despite the drumbeat of guidance cuts and ominous rhetoric from corporate executives, eToro’s Cox said. Investors are still awaiting earnings from more than 150 S&P 500 companies, according to FactSet. Beyond that, there is also a risk that profit cuts could weigh on share prices, market strategists said. Morgan Stanley’s chief U.S. equity strategist and chief investment officer Michael Wilson has said in recent weeks that guidance cuts may not arrive until companies report fourth-quarter earnings early next year, if at all. The S&P 500 is currently expected to post full-year earnings growth of 5.6% in 2022 and 3.9% in 2023, according to Sam Stovall, CFRA’s chief investment strategist. That’s down slightly from Sept. 30, when investors expected growth of 6.3 percent and 7 percent for the full year.

A Russian winter offensive could complicate the outlook for markets

The Ukrainian military has recently managed to keep Russian forces at bay. But that could change if Russia launches a winter offensive, according to Marenzi. Russia has already called up thousands of troops and is preparing to send them to the front line. Historically speaking “winter was their friend,” Marenzi said of the Russian military. “And I think he might end up being their friend again.” A Russian advance in Ukraine would likely hurt risk assets like stocks, Marenzi said, while benefiting traditional havens like the dollar, Treasurys and gold GC00, -0.93% .
Speaking of stocks, major US indexes ended Wednesday sharply lower after a volatile session. The Dow Jones Industrial Average DJIA, -1.55% fell 505 points, or 1.6%, to 32,147.76, after briefly topping a session high of 33,071, according to FactSet. The S&P 500 SPX, -2.50% fell 2.5% and the Nasdaq Composite Index COMP, -3.36% closed 3.4% lower, the biggest daily decline for both indexes since Oct. 7. Bond yields TMUBMUSD02Y, 4.607% also rose after experiencing similar levels of volatility. The yield on the 2-year note was up 3 basis points at 4.568% at 3pm ET, its highest level in two weeks.