Market Volatility Continues To Be Affected by the COVID 19 Pandemic

Today’s outlook proves again the effect of the COVID 19 pandemic on market volatility. At time of writing, major North American indicators are in the green, though tentatively. This sets the stage for a rebound when North American markets open at 9:30 a.m. EST. That follows yesterday’s drops in some airline and cruise shares which had risen on vaccine hopes earlier in the week.

Some European markets are in the red at time of writing, reflecting new lockdowns and fears of their economic impact. “As enthusiasm about a vaccine begins to fade the FTSE 100 has lost ground, with a slowdown in the excited buying of hard-hit value names in sectors like travel, airlines, banks and others,” explains Chris Beauchamp, Chief Market Analyst at IG Group, a London stock firm.

Let’s take a positive attitude to our investments and to the inherent strengths of the American economy but at the same time consider some factors overhanging the market.

At time of writing, the fate of the much-needed stimulus package is not clear. A well-funded package would give both investors and consumers confidence. Many individuals are in both categories and could use a little confidence-building right now.

However, since – at time of writing -- the transition between the President Donald Trump and President-elect Joe Biden administrations looks like it’s going to be tormented, the stimulus package does not look imminent and the pandemic is getting worse.

Also, in terms of the pandemic, horrifying news of increases almost every day mean continued impact for bars, theatres, restaurants, hotels and other service industries dependent on consumers being free to use them. To the extent that this situation continues – so too does the impact valuations of shares in these companies.  That fact of life continues to overhang some investor returns.

This leaves many investing questions for which there is no clear answer today and re-enforces the need for caution. “The reality is that we don’t know what the new normal is going to look like, even when we do recover from the coronavirus, and that is still a ways away,” said Tom Martin, senior portfolio manager at Globalt Investments in a Reuters report. “It’s the classic (situation) between the market discounting something that is nine to 12 months out, and then ‘undiscounting’ it because it has not happened yet,” he said, articulating a major question for investors at this time.

Longer range, there are some realities that will affect stock prices for the remainder of this year and into 2021 starting with economic growth. Moody’s Investors Services forecasts a net decline in growth for this year at 3.9% but projects 4.9% growth in 2021 and 3.85 in 2022.

Also, in the longer range, and irrespective of one’s political views of President-elect Joe Biden, the list of hurdles in the recovery will be enormous. Because the situation worsens and changes every day, we may not even yet grasp all of those hurdles. Even with the best of intentions full recovery will take a period of time that is impossible to estimate.

More directly for investment decision-making, Moody’s doubts that a Biden administration would differ materially from the Trump administration in its relationship with China.

All of this, combined with the abrupt changes in income for millions of suddenly unemployed, can potentially mean more frequent changes in investment philosophy and portfolio weightings than otherwise would be the case. That in turn may have an impact on some individuals’ investment portfolios and retirement plans.