Market outlook: waiting for a vaccine and the US election result.
Just two key events could determine the course of global stock markets for the remainder of 2020.
As we move into the final months of the year, it is becoming increasingly clear that global stock markets are likely to be influenced by just two key events – the development of a vaccine (or rather the lack of it) and the winner of the next US presidential election.
As an add-on to the last point, whoever gains control of the White House, after the US electorate has cast its vote, will decide exactly how much more cash is being pumped into the US economy in the New Year.
Where’s the vaccine?
There’s clearly a degree of frustration among investors that there has been no real progress on the vaccine front. US pharmaceutical giant, Johnson & Johnson*, announced only recently that it had been forced to pause its clinical trials, which were at an advanced stage, due to a patient developing an unexplained illness. As a house, we firmly believe that there will be no vaccine breakthrough now until the spring of 2021.
But, as our Chief Investment Officer, Sonja Laud, states, “it is absolutely vital that a vaccine be developed … otherwise we are unlikely to see a return to normal economic activity anytime soon.”
Biden or Trump?
In terms of the outcome of the US election, polls are increasingly pointing to a Democratic Party ‘sweep’. This means that the Democrats would win both control of the White House and Congress (essentially the US body which passes laws). To read more about the potential outcome of the US elections, read our report. If the Democrats win decisively, we believe this could result in a sizeable amount of cash being injected into the US economy next year.
There’s always the element of surprise
Of course, we know from experience (who can forget November 2016?) that the US election outcome is far from certain. Hand on heart, who really thought Donald Trump would become president of the United States over Hillary Clinton? Apart from the element of surprise, the possibility of a contested result could delay further financial support. In our view, this would probably be the worst outcome for global stock markets.
Furthermore, the rising COVID-19 infection rates that we are seeing in parts of the US and Europe, and the imposition of renewed lockdowns could result in investors becoming more concerned about the outlook for global stock markets.
That said, we are already seeing a more positive economic picture coming from China. Consumer spending in the world’s second largest economy looks to be picking-up, once more, at a time when global growth overall remains under pressure.
*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.