NOTE: Ron Haik, Senior Financial Advisor & Regional Manager, Ontario, Nicola Wealth, will be a session presenter at the upcoming ELO Forums Online. In keeping with the ELO Forum theme, he will be speaking on “Rethink Economics.” The below commentary is a very condensed version of the monthly market commentary from Rob Edel, CFA, Chief Investment Officer, Nicola Wealth. Ron will be drawing upon the analysis of Nicola Wealth during his presentation. For more information on Nicola Wealth’s services, to receive the entire content of the monthly market commentary or to be added to the Nicola Wealth distribution list contact: Rick Goossen, Nicola Wealth (rgoossen@nicolawealth.com).
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The driver behind nearly everything important: the pandemic.
How can we not start our discussion with the pandemic? It is the driver behind nearly everything important right now, dominating discussions of not only the markets and the economy, but politics and elections as well. Disturbingly, the dreaded second wave looks to be materializing earlier than we would have expected in the developed world, with new cases turning higher in Europe and North America.
A vaccine is most likely not until 2021.
While President Trump would very much like to see a vaccine approved and widely available before the November 3rd election, most forecaster’s timelines have slipped well into 2021. According to the Good Judgement Project, the odds of having enough of an FDA approved vaccine to inoculate 25 million Americans by Q1 2021 also slipped last month, though it is still the most likely outcome, and higher than 50%.
Growth has recovered, but future gains are going to be more challenging.
And this is not going to be good for the economy. Growth has recovered quicker than expected, but future gains are going to be more challenging. Americans are becoming more upbeat about the outlook for the economy and employment, but their mood might sour once their extra unemployment benefits expire and their savings start to become depleted. Employment gains appear to stall with jobless claims plateauing at levels much higher than before the pandemic. According to Goldman Sachs, roughly 60% of remaining job losses are in high virus risk industries that will likely need a vaccine before fully recovering.
Confidence in the Federal Government was tested last month.
No problem, we have the Federal Reserve and Federal Government standing by to provide whatever it takes to get us through the pandemic intact, right? This belief is what has allowed the market to largely recover its losses, despite some pretty negative numbers coming out of the economy. While we still believe this is the case, our confidence was tested last month. On the monetary policy front, the Federal Reserve stumbled a bit last month by giving some mixed messages in terms of their outlook for the economy and the need for more stimulus. The market wanted the Fed to back up their comments regarding the need for higher inflation by announcing additional quantitative easing, and they didn’t. One can argue whether it is indeed needed, especially given how much the market has rallied (like a rocket according to some), but the traders are largely greedy and easy money and ample liquidity feeds the bull market.
An uncomfortable US election ahead.
Well, that’s ok, the election is November 3rd, mere days away, right? True, that is Election Day, but not necessarily when we will know who will be President, or control Congress for that matter. With more voters expected to cast their ballots by mail, it is entirely possible we won’t be able to declare a victor on election night. In fact, according to the WSJ, a recent nationwide survey reported more than 50% of voters may vote by mail versus only 20% in 2016.
The market hates complicated and confusing, but it especially hates uncertainty.
There are rules and deadlines, of course, but they are complicated and confusing. The market hates complicated and confusing, but especially hates uncertainty. Option volatility has spiked higher around the election and things could get a little rocky on and after November 3rd, but we would suggest this is just short-term noise. Rules are rules, even for Donald Trump. On January 6th, Congress counts the electoral votes and a winner is declared. Inauguration day is January 20th, when the President is sworn in, either Joe Biden or Donald Trump. What happens in between is the problem, and how long can America wait for more fiscal support?
Why is there a disconnect between the direction of the markets and discounting a Trump defeat?
The disconnect between the direction of the overall market and individual stocks in discounting a Trump defeat might be due to the fact a convincing win for the Democrats would lower the risk of a contested and messy election, which would be more damaging in the short term than anything the Democrats might do once in power.