Stock market turbulence could be preparation for a post-election rally
Stock market turbulence could last until elections, followed by revival, analysts and market strategists say.
The decline in shares by about 2% on Monday came amid renewed fears of a sharp increase in coronavirus infection as cases hit record highs in the United States. At the same time, efforts between Congress and the White House to reach a stimulus deal have also been unsuccessful, and the chances that an agreement will be reached before the presidential election have finally faded..
«It's kind of a double whammy. Covid is definitely heading in the wrong direction in the US right now. I think that now there may be some decline in optimism, because no incentives are foreseen, and elections are just around the corner.», – said Tom Lee (Tom Lee), Head of Research, Fundstrat Global Advisors. «I think the survey results are getting stronger. This is very similar to the Biden White House, and then in terms of politics, if this is a Biden victory, there is a chance that the incumbent administration is simply not rushing into incentives. This will really weaken the markets in the new year».
But Lee and other strategists said this week could be volatile for stocks, but after the election is over, the market is likely to rebound in «relief rally», no matter who wins, at least until it is clear who the winner is.
Shares were selling on Monday shortly before the Dow plunged more than 3% at one point. DIJA restored its losses and closed at -2.3% up to 27685, while S&The P 500 fell -1.9% to 3400. The decline was driven by shares of energy, industry and other cyclical indicators.
«We have a lot to worry about in the next couple of weeks. Because this is a pre-election market. But after the election, I think a lot of the things that make people nervous will turn into a fair wind», – said Lee. «Post-election incentive is when, not if. Even if it is a mixed Congress, I think there will be common ground. The only difference is in volume. It would be a smaller package».
Lee says he believes the coronavirus has become less dangerous, and even if it continues to spread, it is unlikely to lead to the blackouts that occurred in the spring..
But yesterday's comments from SAP, Europe's largest software company, nevertheless caused a serious chill. SAP says its business has been hit by restrictions in Europe as the spread of the virus has skyrocketed there..
Li said Covid has a big impact on the market. «This is now almost as important as the Fed. Covid is suppressing the economy and essentially making up for easy money. If we didn't have Covid, people would go out and spend money, Lee said..
Li said the economy continues to become more open as a result.
Jim Cramer on the stock market’s big Election Day rally
«With the increase in the number of cases in the US and Europe, it just reminds us all that the virus is still with us and will not disappear anytime soon, but with the cold snap and the movement of people indoors the situation is likely to get worse before getting better», – said Ed Keon (Ed Keon), Chief Investment Officer, QMA.
«I think this is unlikely to be the start of a big sale.», – said Keon. «I still think companies' fundamentals are good enough. If you look at the reporting period, it looks promising».
Barry Knapp (Barry Knapp), managing partner of Ironsides Macroeconomics, said the market could also reflect concerns about a possible victory for former vice president Joseph Biden. Biden's ability to pursue his policies will depend on Democrats gaining a majority of Senate seats, which is critical right now..
At the top of Biden's agenda is the elimination of Republican tax rates, which will, in effect, raise taxes on corporations and the rich. He is also expected to promote an incentive program, the size of which will depend on whether the Senate is controlled by Democrats..
According to RealClearPolitics, Joseph Biden ahead of the president Donald Trump by an average of 7.8 percentage points in the main pre-election polls.
«I think that this is a kind of test for lice.», – said Knapp, noting that the market seems to be digesting the idea of a democratic sweep. «For me, the most important election result is, will the reduction part survive corporate taxes?» Otherwise, according to Knapp, corporate revenues will fall, and costs and investments will decline..
Even so, after the elections, if there is a clear winner, the market should grow, strategists say..
«I think this is likely. Elections generate optimism. Then there's seasonality», – said Knapp. Historically, stocks tend to rise between election day and the end of the year..
If there is a prolonged post-election counting without a clear winner or the election is contested, it will lead to a period of volatility in the stock market..
«We remain optimistic. We still think there could be a post-election rally, fueled by a combination of good corporate earnings, very low interest rates, and just a sense of relief that, if this is definitely left behind, there will be a decrease in risk and an increase in prices. stocks, said Keon.
You can also read materials on this topic: