October 5, 2020

MARKET RESPONSES TO ELECTION UNCERTAINTY

Barry Gilbert, PhD, CFA, Asset Allocation Strategist, LPL Financial

Nick Pergakis, Analyst, LPL Financial

Speculation has been increasing that the November election results may be delayed or disputed, or both. A contested election might affect financial markets in several ways. Also, the news that President Donald Trump has tested positive for COVID-19 may potentially impact markets as well.

NOTE ON PRESIDENT TRUMP’S COVID-19 DIAGNOSIS

While this Weekly Market Commentary was in production, we learned that President Trump and First Lady Melania Trump had tested positive for COVID-19. First and foremost, we wish the president and first lady a swift and full recovery. Obviously the news adds a layer of uncertainty to an already contentious election cycle.

The immediate market response has been relatively mild so far. US stocks were lower at open the morning of October 2, but some assets that are perceived to be more resilient in the face of a risk-off environment, such as Treasuries, gold, and the Japanese yen, have shown no real sign of added strength early on. The news adds to the election uncertainty, however. Trump will be unable to campaign in person during the quarantine period that he observes—and maybe longer if he exhibits more serious symptoms—which possibly could hurt his reelection chances. On the other hand, the United Kingdom’s Prime Minister Boris Johnson saw his approval rating rise while he was fighting the infection.

From a market perspective, we think it’s better not to speculate on the election impact of the diagnosis. We do know two things: 1) The response to COVID-19 is very different from case to case, which means only time will tell how the virus may affect the president, and 2) the president and first lady will be monitored closely and will have access to some of the best care in the world, which improves the outlook for both of them.

September 14, 2020

THE BULL CASE FOR STOCKS

Ryan Detrick, CMT, Chief Market Strategist, LPL Financial

Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial

Markets have been on a wild ride in September so far, with a strong first two days of the month followed by one of the sharpest 10% corrections ever for the NASDAQ. The case can be made that stocks may move higher over the rest of 2020 despite a number of risks, including a possible increase in COVID-19 cases, heightened US-China tensions, and election uncertainty.

WILD RIDE

After virtually no volatility since March, market-watchers got a heavy dose of it with the recent three-day 10% correction in the NASDAQ—one of the fastest corrections ever, and the fastest ever from a record high. Historically, the NASDAQ has tended to rise after fast corrections from new highs [FIGURE 1]. Stocks were higher 6 and 12 months after those corrections more than 90% of the time going back 40 years, with the end of the 1990s bull market the glaring exception. Many of these examples took place during the technology boom in the late 1990s, but the history is still instructive

Even with the 4% drop in the S&P 500 Index over the four trading sessions last week, and the nearly 7% drop from September 3 to September 8, the index is still up from the March 23 lows and higher year to date, as of September 11, 2020.