The British philosopher Bertrand Russell once said, “What men want is not knowledge but certainty.” I have been thinking a lot about that quote in the last several weeks, and how especially in such uncertain times, certainty may be more helpful than knowledge in allowing us to move forward.
As we wait for the votes to be counted, and perhaps recounted, in some key states, we’ve gotten some questions about the potential for a divided government and what it could mean for markets if the White House and Congress are split between parties.
As of midnight EST, the 2020 presidential election remains up in the air. With ballots remaining to be counted in several states, an official result may not be known for some time. Below, our experts discuss the next steps in the political process, the policy issues that the markets will be watching, and two critical questions for investors to ask themselves right now.
Since the dark days of March and April, I have remained steadfast in looking across the valley to better times ahead, and this time is no exception. Regardless of near-term turbulence, I continue to favour portfolio positioning for optimistic, long-term outcomes by emphasizing the “recovery” trade and embracing cyclicality. Fortunately, key barometers of global growth have validated this positive outlook.
Well, last week was in fact a Pepto Bismol kind of week, just as I had expected. No fiscal stimulus in the U.S., COVID-19 cases on the rise in Europe and the U.S., and growing concerns about the U.S. presidential election. It’s no wonder that the VIX volatility index has risen dramatically in the last few weeks, from 25 on Oct. 9 to 38 on Oct. 30.1 As I’ve said before, today’s election concerns aren’t your usual run-of-the-mill worries like we saw in past election cycles. Past questions focused on issues such as “What happens to stocks if corporate taxes go up?” This time around, it is “What happens if there is a contested election?” and “What happens if there is civil unrest?”
I am lucky enough to have developed a network of friends despite being a working mom. Some of these friends go back to childhood and high school, some are moms I have met through my children’s schools, and some are friends I have met in the workplace. They have provided a wonderful web of support throughout the chaos that can be child-rearing and everyday life. I have joked with them about particularly bad days — like a parent-teacher conference that we expected to go awry — as being “Pepto-Bismol” days, referring to the medicine used to combat upset stomach (an unfortunate symptom of many a crazy day).
Well, I feel some serious Pepto-Bismol days coming on, given the impending U.S. presidential election, the declining possibility of another U.S. fiscal stimulus package in 2020, and rising COVID-19 infection rates around the world.
There is a feeling of apprehension in markets. I can sense it in the questions I receive. I continue to get more run-of-the-mill queries such as: “Are stocks still overvalued at current levels?” But then there are the new questions, which reflect deeper concerns. Most of the election-related questions I have received are like none I have gotten before in my career.
In mid-June, we began cautioning that the high-velocity, v-shaped recovery in stocks from their March lows was producing tactically overbought conditions, raising the likelihood of a near-term pullback.1 Fast-forward to early-September and the S&P 500 Index began what now appears to be an abrupt risk-shedding event, centered on the high-flying growth and technology stocks.
The first debate between President Donald Trump and former Vice President Joe Biden will take place on Sept. 29 — the first of three debates scheduled to take place before Election Day on Nov. 3. The first debate in an election season leaves an indelible impression on voters, especially in regard to the challenger. And often, this impression has nothing to do with substance on the issues and everything to do with optics and presentation. In short, Biden needs to show voters that he is strong enough and competent enough to hold the office. How he presents side-by-side with Trump will be determinative, in our view.
It’s back to school season, and that invariably reminds me of my own education and all that I enjoyed learning when I was in school. One class that I found particularly thought-provoking was a business school class on the history of entrepreneurship. Interestingly, the curriculum started with Joseph Schumpeter, the economist who introduced the concept of “creative destruction,” which Schumpeter developed based on the theories of Karl Marx. Not surprisingly, I have thought a lot about Schumpeter’s views throughout the pandemic.
It feels like investors have been on a wild ride over the past week as tech stocks plunged, dragging down major global indexes with them. A few factors contributed to the fall: The first was Senator Mitch McConnell’s comments that a U.S. fiscal stimulus deal may not come to fruition in the next few weeks. Then, concerns rose about the potential for a contested election in the U.S. presidential race if no clear winner is declared on election night. Add to that concerns about frothy valuations in the tech space — the result was a very substantial sell-off for tech stocks with reverberations in global markets.
After almost doubling since its cycle low in December 2015, the price of gold witnessed a violent shakeout of over 7% in early August. Has the fundamental outlook for the yellow metal changed or should investors buy the recent dip? To answer those questions, we study some of the major drivers of gold prices, starting with sentiment.
Last week brought some major headlines with a new inflation target policy from the Federal Reserve, news of a leadership change in Japan, a decline in US consumer sentiment, and spikes in COVID-19 cases. What are the implications of these events for investors?
It’s August in New England for the Hooper family, which means hot summer days, barbecues, and lots of time in the water. Every year at this time, my thoughts turn to the iconic movie “Jaws,” which, as regular readers of this blog may remember, is another summer tradition for me. The book came out when I was still a toddler, and the movie soon after, so I must confess that I have never felt comfortable swimming in an ocean in my entire life. In fact, I recall reading the book as a child in the car as we drove from New York to Florida for a beach vacation — and declaring after a particularly frightening chapter that I was ready to turn around and go home.
To assess whether a prolonged “risk-on” environment has emerged, it is important to focus on what we know about market cycles. While no two market cycles are identical, they tend to follow similar patterns. This time has been no different, the global pandemic notwithstanding.