A lot has changed in the past week. I normally try and get this post up earlier in the month, but with everything that has happened—and which has demanded comment—this is the earliest I could fit it in. But that is a good thing, as the ”looking forward” piece is now going to be rather different than it would have been last week. So, let’s take a look back and then forward, and try and figure out where we are going in the next couple of weeks.
Economic news provides cushion. First, October. Markets were down pretty much across the board after a sell-off late in the month, on rising COVID case counts and widespread gloom and fears about the election. Despite the worries, the economy did relatively well. Hiring continued to chug along, layoffs were down, and consumer and business confidence held. A particular bright spot was—and is—the housing market, which continues to go from strength to strength. But the positive economic news could only cushion the market downturn, rather than prevent it.
Markets soar on vaccine news. What a difference a week makes. The election went smoothly, despite the fears, and was called without (so far) any significant turmoil. Then, with those fears settled, we got very good news in the form of the Pfizer vaccine for COVID, which was reported to be more effective than anyone had really thought possible. Even better than the news for Pfizer was what it implied—that other vaccine candidates, using the same technology, would very possibly be extremely effective as well. In a day, we went from no vaccine to possibly several, which took a big chunk of the pandemic worries out of the market. Markets soared on the substantial removal of two of the major concerns that held them back in October.
The outlook for growth. Which brings us to the present. What can we expect for the rest of November? The good news is that the solid economic recovery so far is likely to benefit from the good vaccine news. The results of the election indicate that a Biden presidency is likely to lead to higher spending. In turn, spending would support economic growth, while any higher taxes or regulations would be constrained by what looks likely to be a Republican-controlled Senate. From a policy perspective, markets see a case for more of the good stuff and less risk of the bad stuff. That outlook is what may take markets even higher for the rest of the month.
Medical risks remain. The medical news, however, is more mixed. The pandemic continues to accelerate here in the U.S., and that will increasingly hit the headlines as the election news fades. The vaccine news is terrific, but it will be months before there are enough doses to start affecting the current spread of the virus. And, while a national lockdown remains unlikely, we are starting to see states and cities impose their own lockdowns. That trend will only spread faster with the new administration. The potential for medical news to affect the economy and the markets remains very real, and very likely. The risks have not gone away.
More volatility likely. Much of the recent jump in markets, then, appears to be due to hope that things will get better faster than expected—rather than anything fundamental changing in the here and now. We can expect more volatility over the rest of the month. Markets will refocus on the immediate risks of the pandemic. Political worries may reassert themselves with both the presidency and the Georgia Senate seats on the line. The story of the start of November was everyone feeling good that the world wasn’t ending. The story for the rest of the month is likely to be how investors start worrying again.