By Sudeep Sonawane
Surat, October 2, 2020
Fear and uncertainty prevails among investors over five key reasons that affect markets and global stability.
The first is political. Global community health scare is second. The next two are stock market volatility and last is economic policy decision.
Investors are concerned over the probability of a disputed outcome of US presidential election on November 2, a second backlash of coronavirus pandemic, the recent market slump, professional money managers decision to exit from key scripts, and no prospect of stimulus money in the last fiscal quarter.
A disputed outcome to the upcoming US presidential election remains the primary concern for investors besides a second wave of coronavirus.
Matt Phillips writes in the Sydney Morning Herald newspaper, “The past few weeks market results reflect the uncertainty weighing on investors’ minds as they prepare for what could be a politically turbulent stretch. A Senate fight to fill the former Supreme Court seat of Justice Ruth Bader Ginsburg and the US presidential election, which could result in a constitutional crisis if President Donald Trump refuses to accept the judgment of voters.
UBS Global Wealth Management’s Chief Economist Paul Donovan concurs. In a note to clients he writes, “The first presidential debate didn’t ease investors’ minds. Tuesday’s debate ‘may have increased expectations for a contested election result’, after Trump again suggested he would challenge an unfavourable outcome.”
New York based global investment bank Société Générale’s US chief economist Stephen Gallagher says, “Definitely, politics come into play.”
A survey by deVere Group asked over 700 clients ‘What is your biggest investment worry for the rest of 2020?’
The number one investment worry was a contested US election (72%); the effect of a second wave of Covid-19 (18%) and the US-China trade war (5%). The remaining 5% comprised geopolitical issues such as Brexit.
The 735 people who took part in the poll are resident in the UK, North America, Europe, Asia, Africa, Latin America, and Australasia.
deVere Group Founder and CEO Nigel Green says, “We can clearly see that investors across the globe are starting to become seriously concerned about the U.S. presidential election. It is not about whether President Trump or Joe Biden comes out on top, it is about the impending possibility of a disputed outcome.
“President Trump is already questioning the election’s legitimacy, increasing the chances of a contested result and subsequent constitutional crisis in the world’s largest economy. Therefore, investors have become increasingly fearful that this will lead to massive bouts of volatility in the markets in the US and around the world. It is highly likely that any volatility stemming from the election will have an immense impact for perhaps two to three weeks.”
Covid-19 second wave
Covid-19 second wave is the next reason. There is resurgence of Covid-19 cases in countries across Europe after successfully slowing outbreaks early in the year.
Albania, Bulgaria, Czech Republic, Montenegro, North Macedonia reported higher number of cases recently than the first quarter of the year. France, the UK, Poland, the Netherlands and Spain are dealing with the second wave. France declared 16,096 new cases on Thursday and the Netherlands 3,001 on Tuesday — the highest figures they have recorded.
Stocks have dropped since scaling new highs in early September, with the S&P 500 stock index down about 4 per cent for September, its first monthly decline since March. Last week, the index hovered around correction territory — a Wall Street term used to signify a market drop of 10 per cent or more from a recent high.
Some Wall Street observers attribute the recent market slump to the fact that stock prices — in particular shares of some big technology companies — had become too expensive after rising roughly 60 per cent since late March, when the Federal Reserve moved to prop up the economy.
The market also dipped because professional money managers sold shares to reduce their risk and raise cash, moves that are typical responses to market uncertainty, analysts add.
Heading into the year’s final quarter, investors are also coming to terms with the likelihood that no more stimulus money will be coming, as the approaching presidential election paralyses Washington’s ability to provide fresh support to the struggling economy. The “lack of the last piece of fiscal stimulus that people were counting on or hoping for” has left investors nervous, Gallagher said.
“A contested outcome of November’s US presidential election will undoubtedly send the stock markets into a short-term tailspin, which is playing on investors’ minds. Investors should use the volatility to their advantage wherever possible,” says Green.