While the worst may be over, the V-shaped recovery in the market and overall economic backdrop may be slowing, if not stalling.
- The containment of the virus is crucial to keeping the reopening of the economy on pace.
- Announcements regarding therapeutic drug advancements and progress toward vaccines could have an outsized effect on market performance.
- The market is focused on many things during this earnings season—another fiscal package is at the top of the list.
July’s headlines have been populated by tsunami warnings, earthquakes, wave advisories and a raft of named hurricanes hitting the U.S. While all of this is specifically weather-related, COVID-19 continues to hover across the country, and globally as well. Scientists are attempting to decipher whether we’re still experiencing the first wave, or the beginning of the second wave. Tsunami warnings have gained momentum as polls and betting sites suggest that on November 3 we could witness a political tsunami, with all the associated aftershocks for markets.
And at the end of July, there are still three months remaining for both the weather—and the political landscape—to change.
With all the concern regarding the market being led higher by just five mega capitalization technology names, the second-quarter S&P 500 earnings season has, despite the obvious difficulties in offering precise guidance, seen earnings reports beat consensus estimates by nearly 80%. Business formations continue to rebound, the housing market continues to recover, and the Conference Board Employment Trends Index (ETI) shows signs of stabilizing. Truckers are seeing improvement and rail shipments are climbing higher. Yet, while the worst may be over, thanks in large measure to immense help from monetary stimulus and fiscal packages, the V-shaped recovery in the market and overall economic backdrop may be slowing, if not stalling, as we head into August.
The containment of the virus is crucial to keeping the reopening of the economy on pace, not to mention bringing back live sports, albeit with fans having to watch from afar. August is historically a slow or even weak month for the market, but given the unusual environment, to say the least, announcements regarding therapeutic drug advancements and progress toward vaccines could have an outsized effect on market performance. If a vaccine is central to our return to a normal, or even a quasi-normal world, the passage of the next fiscal support plan is crucial for the economy and the market’s perception of where the economy is headed in the short term. The market will demand a viable response from the country’s leadership.
Read Quincy Krosby’s full August 2020 market commentary, “Crosscurrents" PDF (473 KB).
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This document has been prepared solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The Prudential Insurance Company of America, Newark, NJ, and its affiliates. Prudential and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. In providing these materials, the issuing companies and distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations.
© 2020 Prudential Financial, Inc. and its related entities. Prudential Annuities, Prudential, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.