A vote for stocks. After solid summer gains came September volatility. The question now is what’s priced into markets as investors zero in on COVID-19 developments and the November election. Highlights of our Q4 outlook:

  • Market volatility is likely to remain elevated through year-end.
  • Elections bring uncertainty but little long-term bearing on stock performance.
  • Stocks’ favorable valuations vs. bonds should prevail as rates stay low.

Market overview and outlook

U.S. stocks have made up significant ground since their March lows. We see COVID-19 vaccines and therapeutics as a key driver moving forward. Positive vaccine progress this fall could further boost stocks, particularly those at the epicenter of coronavirus pain. Examples include travel and leisure broadly, and select retailers. While the unprecedented vaccine effort has required significant government outlay, the money spent pales relative to expected economic losses. The COVID-induced slowdown will cost the economy $7.9 trillion over the next decade, according to the Congressional Budget Office. Vaccine investment in the area of $4 billion is money well spent.

Alongside the ongoing battle with the pandemic and its economic fallout is a pivotal U.S. election. Volatility historically has trended higher as elections near, and this year is likely to be more pronounced. It wouldn’t surprise us to see a contested election that drags on, exacerbating volatility through December. Our view leading into year-end: balanced.