Markets and the economy have 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 keenly 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 3rd is Election Day, and apropos for 2020 this election will be one of the most uncertain in memory. Beyond the most important question, “Who will win the Presidency?” markets are also focused on whether the Democrats will be able to take control of the Senate. If so, and Biden wins the Presidency, Democrats would control both the legislative and executive branches of government, a scenario dubbed the “Blue Wave” by the financial media. Such a scenario would result in the increased potential for policy changes which would likely create short-term market volatility.
However, any near-term volatility associated with a Blue Wave would likely be small compared to the worst-case scenario for the election, namely that there is no clear winner by the end of Election Day and the election becomes contested. In that outcome, we should expect significant short-term market volatility until a winner is declared, potentially as late as mid-December.
Unfortunately, the election is not the only source of uncertainty and volatility coming in the next three months. Hopes for a COVID-19 vaccine have helped stocks rally to current levels, and there are now three separate vaccines undergoing final Phase III trials. Those trials will likely reach their conclusion in the coming weeks, perhaps before the election. If those trials fail to produce a viable vaccine candidate, it will cause 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 is near-universal agreement that the economy could use more stimulus, but the politics of the election, combined with Republican and Democrat differences about how much money should be spent and where that money should go, have prevented stimulus from being passed and delivered to the U.S. economy. Markets expect a stimulus bill to pass by year-end, and if that fails to materialize, it will create additional headwind.
The bottom line is that the resiliency of the U.S. economy and markets is both admirable and encouraging, as the economic and market recovery from the worst pandemic in 100 years has been nothing short of extraordinary. That rebound verifies the value of sticking to a well-constructed, diversified financial plan aimed at achieving long-term investment goals. However, our experience has taught us not to be complacent simply because the market has been resilient. While we have all welcomed the strong market rebound in Q2 and Q3, the fact remains that many important unknowns will be resolved in Q4, and as a result, there is the possibility for more market volatility during the final three months of 2020.
At Wisdom Wealth Strategies, we are actively monitoring the risks facing the markets and the economy, and we remain enthusiastically engaged in helping you effectively navigate this challenging environment. We will continue to provide the information you need to make your best financial decisions. As we work our way through the final quarter of the year, we will be by your side, guiding you every step of the way!
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.