Stock investors will face a series of unpredictable outcomes and confusing market signals. For the current situation, the best choice for investors may be to wait patiently for the situation to become clear before investing.

The US election situation is tense, while the European corporate earnings season has started to improve after a slow start. Interest rates continue to rise uncomfortably, and the market seems to be torn between hedging against declines and preparing for upward movement. The momentum of benchmark stock indices is cooling off, but has not turned significantly negative. There is also no sign indicating that the current consolidation is evolving into a more profound adjustment.

Currently, it is difficult to find clues from thematic positioning. Large technology companies have recently experienced fluctuations, causing the stock market to lose strong upward momentum. The lower quality segments in the market, such as unprofitable technology stocks and heavily shorted stocks, are performing poorly. Stocks benefiting from inflation, stagflation, and cyclical stocks are leading the way.

Recently, there has been an increase in volatility. Although most of this year's record highs for the S&P 500 index occurred when the VIX index was low, the recent record highs set in the past few weeks have been accompanied by greater price fluctuations. Tier 1 Alpha strategists stated: 'Periods of heightened volatility during a bull market may not necessarily raise concerns but are a sign of a mature rebound.'

This paves the way for a potential rebound - depending on the outcomes of several coin toss events. The most critical of these events is the US election. History shows that in the final days before the November 5th election, volatility should diminish. But currently, the range of volatility in the results seems broader than ever before.

Monica Defend, Chief Strategist at Amundi SA, wrote: 'Most importantly, it will only be clear after the election which policies will be implemented - beyond the election rhetoric - or whether Congress will agree to enact these policies.'

Meanwhile, the dynamics of the earnings season are constantly changing. Strong performance reported by Hermès and Unilever (UL.US) indicates that there will eventually be good news in the luxury goods and consumer goods sectors. From a broader perspective, analysis shows that despite revenue facing headwinds, companies are still generating profits.

Investors have always been eager to reward companies with strong performance, while there is not much punishment for companies with poor performance. Christoph Mertens, portfolio manager at Fuerst Fugger Privatbank AG, said that the low threshold has created space for surprises, "some companies have been able to take advantage of this."

Marc Decker, Co-Head of Stock Business at Merck Finck, pointed out that 74% of US companies have outperformed expectations, while about half of European companies have exceeded expectations. The key support for profits - also a very difficult point to determine - is the data of large technology companies. He said, "Stock prices and valuation multiples can undoubtedly be considered quite high. Investor expectations are also the same. While some are looking for alternatives outside of large technology companies, this has not yet developed to the extent of completely moving away from the technology industry."

Considering all this, the market direction is still event-driven, as traders digest news after news, the market may remain unstable. Hedge fund investors' positions may limit the range of losses, but the unknown impact of financial reports, the outcome of the US election, and the direction of interest rates could make things chaotic by the end of the year.

In this situation, Mertens recommends staying optimistic, but diversifying investments fully. He said that investors should keep cash on hand for potential opportunities because there are bound to be some big moves in the days ahead.

Editor/rice