Coronavirus Market Recovery Hits Pause

The stock market’s torrid recovery from the coronavirus induced drop hit a pause in September. The month began with a swift sell-off in high-momentum technology related shares, providing a reminder for some that no part of the market is immune to volatility.

New COVID-19 cases in the U.S. flat-lined at around 40,000 per day, which was better than July or August but still disturbingly high. Cases in some European countries that had lowered transmission to near zero have again increased significantly in the past few months, suggesting efforts to contain the virus through economic shutdowns are only effective temporarily. Jobless claims continue to tick lower but remain extremely elevated.

News surrounding progress for a vaccine was mostly positive this month, though the outcome remains highly uncertain. Since the pandemic began, headline stock indexes in the US are roughly flat but have been supported by gains in a narrow group of the biggest technology companies. The average stock in the S&P 500 remains down about 7% from the February peak. This suggests a successful vaccine in 2021 could present the biggest opportunity for stocks battered in 2020.

How Will the Election Impact the Market?

With the election rapidly approaching, many are bracing for volatility. With the outcome likely to go either way, an immediate market reaction can be expected, but we note that the market has not reacted strongly to swings in the polls and does not seem to have significant preference for either candidate or party. It is unclear how President Trump’s contraction of COVID-19 will impact voters, and much may depend on how quickly he recovers. Once again, initial market reaction was muted.

An emerging risk is a contested election, which could cause short-term pressure. Even if this occurs, we view it as highly unlikely that corporate earnings would be significantly impacted. For the rest of 2020, the success of congress to pass additional stimulus may be more impactful than the election results. Markets appear optimistic there will be a package, but for now the two sides remain far from agreement.