Tim Hoyle, CFA, Chief Investment Officer
thoyle@haverfordquality.com
What Do You Get When Covid-19 Cases Rise Without Any Fiscal Stimulus on the Horizon? A Down Market.
As of Wednesday afternoon, the S&P 500 has declined 7% from its recent high on October 12th. As we highlighted on Tuesday, earnings season has been good so far. But not good enough to offset the rising fears of another economic lockdown. This week, partial restrictions (i.e. lockdowns) of some kind have been enacted across most of the European Union and closer to home, Chicago has once again banned indoor dining. Investors, business owners, and consumers rightly anticipate that restrictions could be coming to their neighborhood.
The silver lining to this latest surge in cases may be that it proves to be the catalyst needed to reignite stimulus talks and a real compromise. It is unfortunate that we need stimulus at all, but if government mandates a slowdown in economic activity to curb the spread of Covid-19, then it is incumbent on government to assist those who have had their lives upended because of it.
The news flow on the pandemic, plus the uncertainty of next week’s election, may be enough to push the market down further. The near-term risk confronting us in the papers every day almost always provides enough of an excuse to step aside from the market. Many long-term investors who become short-term traders are swindled out of their profits. Take the long view: every day we learn more about the virus, treatments are improving, mortality rates have stabilized, and we are one step closer to the end of this tunnel.
Source: FactSet Research Systems, World Health Organization
Lastly, we would be remiss if we didn’t highlight that the shares of social media companies fell sharply yesterday as their CEOs testified before Congress. The decline in these mega-cap companies is helping to pull down the market averages. It may be difficult for these stocks to reach new highs if the specter of congressional oversight looms over the industry.
