With some hope on the horizon for the COVID-19 pandemic, with many vaccines and treatments in the works, markets are on fire. However, with elections looming, chatter of a second wave of COVID-19, and money being printed by the feds, is a pull-back bound to happen? As Forbes reports, Goldman Sachs has predicted a smaller effect on the economy in the present quarter (Q2) and has adjusted its GDP forecasts accordingly.
Economic indicators point to a rosier future for the global economy, particularly in terms of continued long-term growth. However, we’re not totally out of the woods yet.
Volatility has been a main aspect of the markets in the COVID-19 pandemic, and is expected to rattle the market for the next half of 2020. Though the economic outlook has rebounded after the COVID-19 bear market of 2020, the market is improving in fits and starts, seemingly improving one day, with a significant sell-off the next. As Marketwatch writes, “stocks have bounced back strong in the 100 trading days since the March 23 low.”
On August 13, the S&P 500 was at 50.1% above its lowest close of the pandemic on March 23, 2020. Closing at 3381.99 on August 17, 2020, the S&P 500 is not too far off from its peak at 3,386.15 in mid-February; yet, with the markets back to their pre-COVID-19 levels, it’s possible we’re at the beginning of a massive sell-off that could send the markets back to bear territory.
It’s unclear what’s in store for the rest of 2020, but one thing we can expect is continued volatility for the next several months. Here are indicators that may drive volatility in Q3 and Q4 of 2020 — and why.
With the November elections looming, the economy and healthcare are sure to play large roles, as they tend to do in presidential elections, but even moreso amid the COVID-19 pandemic. The U.S. Congress recently adjourned for a later-than-usual August recess until early September without ensuring benefits for millions of Americans whose unemployment benefits have lapsed. This fact, coupled with the recent social events in the United States, as well as a lack of a second stimulus check for other Americans, will surely factor into the United States’ choice of President this December. The uncertainty in the polls is sure to rile up the markets, as people cannot reliably predict who will be president — Donald Trump or Joe Biden.
Businesses Can’t Pay Back Loans
U.S. small businesses who are struggling during the pandemic are able to obtain loans through the U.S. federal Paycheck Protection Program or PPP. Many businesses cannot repay the small business loans, and the loan money has run out for many businesses. According to a poll reported by NNY360, one in four workers that was rehired thanks to money coming in from the PPP may be fired again.
Continued Trade War Escalation
Repeated escalations of the trade war between the U.S. and China, will continue to rile up the markets, particularly in the tech sector, as U.S. tech companies continue to look to expand in the Asian markets. In 2018, Donald Trump blocked the sale of Qualcomm to China. Qualcomm has again expressed interest in working with China, most recently via lobbying to sell chips for Huawei 5G phones.
Another source of conflict between the US and China has been the popular social media app Tik Tok. The Chinese social media company was called out earlier this year for secretly accessing the MAC addresses of Google Android users, in violation of Google policies, according to the Wall Street Journal. The company also recently stated it will stop accessing the clipboard’s of users’ smartphones, a practice meant to curb spam that was espoused by both TikTok and others, like Microsoft’s LinkedIn. As a result of Tik Tok’s shady practices, President Donald Trump signed an executive order stating that Tik Tok’s United States operations must be bought by a United States tech company in the next 45 days. Microsoft and Twitter have both stepped up to the plate in expressing interest in acquiring the popular social media service.
It remains clear that continued conflicts in the tech sector between the US and China are part of a larger trade war that has stemmed from the beginning of the Trump administration, affecting not only tech but also other sectors such as retail.
More Money Being Printed
The U.S. Federal Reserve is printing money to boost the economy during the COVID-19 pandemic. This process is creating new money from scratch, as the USA Today reports, with hopes of injecting trillions of dollars into the lagging economy.
The implications of the new influx of currency are complex: good in the short term, but a market correction could still be likely when the feds stop the flow of money, which could cause a dramatic sell-off. Or, if the feds decide to slow down the printing of money, then the market could price in those new expectations.
In the COVID-19 pandemic, uncertainty, though stressful, can work out to your advantage. With stock prices dropping one day and skyrocketing the next, this presents many good buying opportunities. Still, it can wreak havoc on your portfolio.
The next 12 months will likely prove to be a time of heightened volatility as the world tries to get back to a “new normal.” We will likely have a vaccine that can be administered via an Emergency Use Authorization (EUA) to high-risk populations by the FDA by late 2020, and White House Science Advisor Anthony Fauci does not believe a vaccine would be available for widespread use until early 2021; however, it’s unclear what the next year or so will hold. One thing is for certain — all eyes are on the markets.