The year 2020 has been anything but normal and most everyone will be happy to see it go. Now we are 2 short months away from 2021 and the stage is set to resolve some of the year’s biggest unknowns (positively or negatively) in the coming weeks. Each of these storylines has the potential to cause volatility in the markets.
These are 3 sources of potential volatility we are keeping a close eye on:
1. 2020 Elections
Who ends up in control of the Presidency and the Senate will affect markets, but the uncertainty surrounding the election could now extend to when the results will be known and whether they will be accepted. Though the result of the election remains unclear, the potential policy changes will likely create winners and losers in different sectors of the economy. With higher corporate taxes and increased regulation around climate and healthcare on the Democratic platform, we would expect the energy and pharmaceutical sectors to lag while an infrastructure bill would boost construction. Conversely, energy and retail will likely outperform on the Republican platform of lower taxes and further decreased regulation in the climate sector.
So far, state and local leaders have shied away from the broad shelter in place orders that brought the economy to a halt this spring, instead opting for more targeted measures. However, the record highs in new cases could force their hand as we move into the traditional “cold and flu” season. Several European countries including France, Germany, Ireland and Spain have responded in the past week with national shutdowns or curfews. We should also get information on several of the possible vaccines and treatments that are in Phase III trials before the end of the year.
3. Stimulus Bill:
It is widely accepted that another round of fiscal support is needed to help bridge the gap until a vaccine is ready and our economy can return to “normal.” The failure to pass a bill before the election is creating more volatility for Wall Street and more economic pain for Main Street. The big question now is whether a lame duck session of Congress will be able to come to an agreement before the end of the year, or if it will be left to the new Congress in early 2021.
While short-term volatility may reappear, one of the stories of 2020 is how resilient our country and our economy have been, and how a well-designed and well-executed investment strategy can overcome periods of elevated volatility.
We are here to help
We believe this is a time to be prudent risk managers, but it is also a time to prepare for future investment opportunities. With so much uncertainty facing both the markets and the economy, we are committed to helping our clients effectively navigate this challenging investment environment.
If you believe your portfolio could benefit from our disciplined risk management, please don’t hesitate to contact us.