The first quarter of 2020 was one of the most unsatisfactory performances in the history of the S&P 500 due to the coronavirus pandemic, followed by a notable rally during the second quarter. Powerful waves in performance out of recessionary bearish markets have generally been suggestive of further strength and above-average yields. Enormous monetary and fiscal stimulus has fueled the rally as policymakers attempted to reduce credit concerns and support the crumbling economy.
As the economy revives, numerous early economic readings perform better than expectations and lifting investor sentiments. Though the coronavirus’s spread remains a chief influence on equity markets, people are hopeful by the promising medical treatments and the possibility of a vaccine.
However, it is crucial to be mindful of the potential pockets of outbursts as the economy reopens. Please continue reading to learn more about how the coronavirus pandemic, along with the looming elections, has forced markets and stocks to face uncertainty and what challenges and opportunities arise.
Opportunities and Challenges
As if the coronavirus spread has not already generated enough uncertainty for the market, investors must also equip and prepare for an upcoming presidential election, along with the possibility of China/US trade rhetoric ramping up with time.
As far as elections are concerned, the chances of Democratic sweep are rising, and this poses a considerable threat to the equity market as Joe Biden intends to increase corporate taxes to 28 percent from 21 percent and levy other taxes too.
With so much ambiguity surrounding influential variables, there is bound to be a surge in volatility. However, the positives, namely, unprecedented stimulus, will outweigh potential negatives.
The volatile period can be seen as an opportunity to gather favored areas for long-term bullish markets as the bearish market are violent and ephemeral. On the other hand, a bullish market has historically lasted for years.
Industry and Global Positioning
Sectors like healthcare, technology, consumer discretionary, and communication services are seen to be favored during this ambiguous time. The health care and technology-oriented stocks have outperformed in the current environment due to relatively strong fundamental momentum and stable earnings streams.
Similarly, the technology sector continues to benefit from the augmented transformation of the traditional economy to a digital economy. Hence, communication services enjoy the benefits of increasing broadband demands and content.
Consumer Discretionary is the newest privileged sector that upgraded to an overweight recommendation as investors are adding more exposure to cyclical areas that are aiding in economic recovery. Furthermore, there are several dynamic consumer businesses operating above-average through the pandemic because of improved online capabilities, while others have to wait for the economy to normalize over time.
In regards to global positioning, the United Stated remains the most favored region. Nevertheless, the depreciation of the US dollar can allow emerging markets to leverage from this setback. Moreover, the international markets will likely witness a surge due to considerable stimulus such as the liquidity injections into the system by the European Central Bank and Bank of Japan.
The Final Note
Despite the coronavirus pandemic, research shows that equity markets are in the early phases of a bullish market. Unprecedented global stimulus and low-interest rates are most likely to drive economic recovery and result in eminent valuations.
Although volatility is bound to occur in the months ahead because of the enormous ambiguity surrounding the presidential elections, coronavirus, and geopolitical tensions, we truly believe that the positives will outweigh the probable negatives. Hence, we’d suggest being buyers in pullbacks and place portfolios toward long-term opportunities of the bullish market.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. All investing involves risk including loss of principal. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.