Insights & Advice


Markets are in a tug of war

The number of COVID-19 cases and deaths are surging way beyond the totals earlier in the year. That promises tough going for the economy over the next two quarters. On the other hand, two highly effective coronavirus vaccines have been announced, but won’t be widely distributed until next year. In the middle sits the stock market. What are investors to do?

We know that financial markets are discounting mechanisms that cause investors to buy or sell stocks based on what may happen in 6 to9 months from now. At that time, so the story goes, at least two vaccines will be readily available to most of the public. The economy should begin to rebound, and unemployment should decline. That is a bullish case for equities, so we should buy now.

However, in the near term (3-4 months), thanks to the second coronavirus surge, the economy is expected to slow, unemployment to rise, and stocks to possibly fall. Adding to these woes is the expectation that with little-to-no fiscal stimulus forthcoming from a divided government, the impact on the economy will be more severe than during the first go around. At this point, it is fairly certain, according to most economists, that the reason the economy bounced back as quickly as it did from the first nationwide shut down was both the quick response by the government, and the amount of monetary and fiscal stimulus.

As of this week, there are no plans for another country-wide shut-down. Instead, individual states, cities, towns, etc. are closing some things down and leaving others open (schools versus bars and restaurants, for example). Most businesses are simply ignoring all of it, while trying to convince workers that everything is all right when it isn’t.

As a result, the coronavirus case numbers are increasing exponentially. Worse, there appears to be no way to prevent it.  Next week, a large segment of the population is already making plans to visit the family for Thanksgiving week, despite medical advice to the contrary.  The way we are headed, I expect that the case load in hospitals should continue to mount. Friends, families, and neighbors will continue to die and, at some point, a partial or total shut-down of the economy could occur out of necessity.

If so, this time around I expect there won’t be an immediate stimulus response from the government. That could do lasting damage to the economy and prolong the time required to recover. Despite pleading from the Federal Reserve Bank and just about every economist in the nation, both the president and Congress are not listening. Both parties are far too engrossed in debating who won the election (or who will win the Senate in January) to worry about another couple hundred thousand deaths, let alone jobs and the economy. It is the America we live in.

Normally, the week leading up to a national holiday such as Thanksgiving, is positive for stocks. This year, the averages will likely be tugged in two directions—the bearish, daily rise in COVID-19 cases versus more good news on the vaccine front. It doesn’t take a rocket scientist to predict the bad news should get worse, which leaves the markets dependent on more vaccine news to remain buoyant.


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