September 25, 2020

Bill Hastie |

Another volatile day on Wall Street yesterday with all three U.S. equity indices selling off most of the day’s gains in the last hour of trading.  On the day, Dow gained 52.31 points, or 0.20%.  The S&P 500 and the NASDAQ followed suit, gaining 9.67 and 39.28 points, or 0.30% and 0.37%, respectively.

An analysis of the current markets is as complex as it is uncertain.  The U.S. equity markets are at the crossroads of needing a fiscal stimulus from a House that is mired in political wrangling over how a stimulus package would be structured as well a Senate on the verge of confirmation of a Supreme Court nominee.  Recent reports of growing COVID infections in Europe has the race for a vaccine all the more vital.  A slowing economy is evident of challenges with stubborn unemployment and consumer spending numbers.

The conversation is no longer about the markets being over-valued, or really anything having to do with the markets.  At the core of the market’s challenges are known as exogenous factors – factors involving issues outside the markets.  Other than the health challenges of the coronavirus, politics seems to be causing the lion’s share of the market’s volatility.  Follow the bouncing ball – market traders are looking for an economy that is growing in key sectors; those key sectors cannot grow without additional fiscal stimulus (or so says Federal Reserve Chair Jerome Powell); fiscal stimulus will not be achieved until the House approves a stimulus package, and the Democrats and Republicans in the House cannot come an agreement as to how the package will be structured.

For this reason, some market analysts are looking past the 2020 election and its associated politics to a much better 2021 and 2022 for stocks.  The consensus seems to be that even if the market suffers a significant decline, albeit short-term, the market will recover as it always has.  The challenge will be stomaching the volatility between now and then.