Our process suggests that the 4th quarter will be positive for the stock market, albeit with the potential for heightened volatility. The economy has rebounded faster than initially expected, and markets are looking forward to a probable COVID vaccine approval in the next few months. Factors that powered the market higher over the summer - historically low interest rates, favorable credit conditions, investor cash in search of higher returns, and a synchronized global recovery - should remain in place and continue to drive stock prices. However, political uncertainty and the ebb and flow of the ongoing pandemic could make for a bumpy ride.
Our process suggests that the September market highs were healthy. The market had advanced significantly in a relatively short time, and a pullback served to work off optimism that had gotten extreme. 5-10% pullbacks are normal and healthy, even if it may not feel like it in real time.
Many of our clients are concerned about how politics may affect the market in the coming months – a certain party keeping/gaining power, or a drawn-out and messy election process. First, we remind people that they invest in innovative, profit making companies that have been successful in different political environments over time. Trends in industries like e-commerce, credit cards, software, 5G, and many others are not likely to be affected by which party controls the White House or Congress.
Additionally, however drawn out the election is, it is a singular event with an eventual end-date. While it may be a drawn-out process, investors should also consider the possibility that the election is decided rather quickly. Contrast the current election uncertainty to other market risks like fed policy, trade wars, economic uncertainty etc., which are often open ended, and you can see that election uncertainty can amount to far less of a threat to the market in the long run. Throughout this process, we will be monitoring risk especially closely. Regardless of how the next few months unfold, we will continue to follow our investment process and make recommendations to our clients that are aligned with their long term financial goals and needs.
