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@theMarket: Markets Are in a Tug of War

By Bill SchmickiBerkshires columnist
The number of COVID-19 cases and deaths are surging way beyond those cases earlier in the year. That could indicate tough going for the economy over the next two quarters. On the other hand, two highly effective coronavirus vaccines have been announced, but won't be widely distributed until next year. In the middle sits the stock market investors.
 
We know that financial markets are discounting mechanisms, meaning that investors usually buy or sell stocks based on what may happen in six to nine months from now. At that time, so the story goes, at least two vaccines will be readily available to most of the public. One may be ready for limited distribution before the end of the year if all goes well. That should cause the economy to rebound and unemployment should decline. That is a bullish case for equities, so investors would normally anticipate that and buy now.
 
However, in the near term, the next three-four months, thanks to this second coronavirus surge, the economy is expected to slow, and unemployment to rise. The expectation that little to no fiscal stimulus is forthcoming from our divided government adds to investor worries. The impact on the economy in the short-term could be severe as a result. It is fairly certain, according to most economists, that the reason the economy bounced back as quickly as it did from the first nationwide shut-down was the quick response by the government to  monetary and fiscal stimulus.
 
As of this week, there are no plans for a countrywide shutdown. Instead, individual states, cities, towns, etc. are closing some things down and leaving others open (schools versus bars and restaurants for example). Most businesses are simply ignoring all of it, while trying to convince workers that everything is all right when it isn't.  
 
As a result, the coronavirus case numbers are increasing exponentially. Worse, there appears to be no way to prevent it. Next week, a large segment of the population is already making plans to visit the family for Thanksgiving week, despite medical advice to the contrary. The way we are headed, I expect that the caseload in hospitals should continue to mount. Friends, families and neighbors will continue to die and, at some point, a partial or total shut-down of the economy could occur out of necessity.
 
If so, this time around I expect there won't be an immediate stimulus response from the government. That could do lasting damage to the economy and prolong the time required to recover. Despite pleading from the Federal Reserve Bank and just about every economist in the nation, both the president and Congress are not listening. Both parties are far too engrossed in debating who won the election (or who will win the Senate in January) to worry about another couple hundred thousand deaths, let alone jobs and the economy. It is the America we live in.
 
Normally, the week leading up to a national holiday such as Thanksgiving, is positive for stocks. This year, the averages will likely be tugged in two directions — the bearish, daily rise in COVID-19 cases versus more good news on the vaccine front. It doesn't take a rocket scientist to predict the bad news should get worse, which leaves the markets dependent on more vaccine news to remain buoyant. 
 
Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

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