Updated: Nov 9, 2021
This year continues to be one of the most unpredictable in memory, as markets rose last quarter to new all-time highs despite a resurgence in coronavirus cases. As stocks rallied thanks to a combination of even more accommodative Fed policy, hopes for a COVID-19 vaccine and a stronger-than-expected economic rebound, before markets declined moderately from those highs in mid-September.
Q3 Market Performance Review
New All-Time Highs Major U.S. stock indices all extended the rebound that began in the second quarter of 2020, and just like the previous two quarters, the tech-heavy Nasdaq outperformed the other major indices. Those gains were once again driven by the performance of some of the largest, most-well-known tech companies in the world, as they are viewed as the longer-term beneficiaries of changing personal and professional behavior in response to the pandemic. Stocks such as Apple (AAPL), Amazon (AMZN), Google (GOOGL), and Netflix (NFLX) helped send the Nasdaq to new all-time highs in July, August, and early September.
Fourth Quarter Market Outlook
Markets and the economy staged a historic rebound since the late March lows, and while we all welcome this impressive comeback, we enter the final quarter of the year aware that some of the biggest unknowns for the markets and the economy will be resolved positively or negatively in the next three months.
Starting with the obvious, November 3 is Election Day, and apropos for 2020 this election will be one of the most uncertain in our lifetimes.
Beyond the important question, “Who will win?” markets are focused on whether the Democrats take control of the Senate. If Biden wins the election and, Democrats control both legislative and executive branches of government, the increased potential for policy changes would likely result in short-term market volatility.
However, any near-term volatility associated with a so-called Blue Wave would likely be small compared to the worst-case scenario for the election, namely no clear winner by the end of Election Day and contested results which would drag the entire country through a similar episode of Bush vs. Gore in the 2000. In that event, we should expect significant short-term market volatility until a winner is declared, potentially as late as mid-December.
The election is not the only source of potential uncertainty and volatility coming in the next
three months. Hopes for a COVID-19 vaccine helped stocks rally to current levels, and now three separate vaccines are in final Phase III trials. Those trials will likely conclude in the coming weeks, perhaps before the election.
If trials fail to produce a viable vaccine candidate, that will also create volatility as markets are expecting widespread COVID-19 vaccine distribution by early to mid-2021.
Finally, by the end of the fourth quarter, investors will learn the fate of the stimulus bill currently stuck in Congress. There’s near-universal agreement the economy could use more stimulus, but the politics of the election, combined with disagreements about how much money should be spent and where it should go, have prevented stimulus from being passed and delivered to the U.S. economy. Markets expect a stimulus bill by year-end, and if that fails to materialize, it will create more volatility. Bottom line, the resilience of the U.S. economy and markets is both admirable and encouraging, as their recovery from the worst pandemic in 100 years has been nothing short of extraordinary. That rebound validates the value of sticking to a well-constructed, diversified financial plan aimed at achieving long-term investment goals.
However, experience has taught us not to be complacent simply because the market has been resilient. So, while we all welcomed the strong market rebound in Q2 and Q3, important unknowns will be resolved in Q4, and because of that, there is possibility for more market volatility during this quarter.
While short-term volatility might reappear, the markets in 2020 have once again demonstrated that a long-term approach combined with a well-designed and well-executed investment strategy can overcome periods of elevated volatility, market corrections, bear markets and even global pandemics.
At Brixton Capital Wealth Advisors, we understand the risks facing both the markets and the economy, and we are committed to helping you navigate this investment environment. Successful investing is long term, and even intense volatility like we experienced in the first half of 2020 is unlikely to alter a diversified approach set up to meet your long-term investment goals.
Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve
worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.
Finally, we thank you for your ongoing confidence and trust and please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.