While these aren’t normal times, positive developments toward a vaccine can offer markets the sort of halo effect that delivers us to the other side of the pandemic.
- The third-quarter earnings season should provide an important focus for the market.
- The economy continues to heal; the stellar initial recovery has given way to a slower, but solid and steady, economic backdrop.
- The options market suggests that investors expect increased volatility in November and December.
The concept of “push and pull” permeates business literature with regard to supply chain management, manufacturing and digital marketing. And then there’s the “push and pull” in relationships, warranting an entire body of research with its own theories on personal relationship dynamics. At the most granular level, there are, across the country, thousands of small businesses advertising their services and equipment to push or pull just about anything.
In 1977, Queen lead guitarist Brian May, who also has a doctorate in astrophysics, wrote and introduced the world’s most iconic and enduring stadium chant: “We will, we will rock you!” In a recent interview with The Wall Street Journal, May explained, borrowing from astrophysics no doubt, that in discussing the song with the band, and wanting it to be an audience participation song, “It had to be an audience-artist, push-and-pull-thing.” Little did Queen know at the time that this push-and-pull experiment would rock the world of sports forever.
But where we are now—slowly pulling out of the worst of the COVID-19 lockdown economic crisis and headed into an election—has its own distinctive push and pull characteristics. It’s reflective of a still uncertain backdrop as the virus hovers over the globe, threatening second and third waves, but with therapeutic therapies, social distancing and a reluctant move toward masking keeping the hospitalization and death rates at levels lower than what we experienced in the spring. The push-pull coming from politicians and scientists concerning the advent of a safe and effective vaccine is more like an out-and-out tug of war, with the majority of Americans remaining skeptical about the political hype surrounding the vaccine race.
Markets in September lived up to the month’s reputation of being difficult, while the end of September and early October typically usher in a more hospitable market backdrop. And while these aren’t normal times, positive developments toward a vaccine can offer markets the sort of halo effect that delivers us to the other side of the pandemic. On October 22, The Food and Drug Administration (FDA) will hold a meeting to discuss, in “general” terms, “the development, authorization and/or licensure of vaccines to prevent COVID-19.” Critics argue that scientific presentations are crucial to underpinning the public’s trust in the process, and a “general” discussion promises to erode public acceptance of a vaccine.
At the same time, the global economy continues to heal, COVID-19 notwithstanding. October could see a resolution to the interminably stalled and seemingly deadlocked fiscal relief package emphatically demanded by the Federal Reserve, although the confirmation logistics for the Supreme Court nominee diminishes, but does not completely preclude, prospects for a deal. In addition, the October calendar for presidential and vice presidential debates is certain to fuel the pushing and pulling associated with a race that is tightening, not to mention an options market that is factoring in a volatile period post-November 3.
The third-quarter earnings season should provide an important focus for market participants, especially with expectations of corporate profits rebounding compared with the second quarter. Guidance, too, is expected to offer a raft of positive surprises. This year, however, earnings reports and corporate guidance will be competing with political, geopolitical and vaccine-related headlines, keeping the algorithms that so dominate daily trading on hypervigilant and hyperactive alert.
Read Quincy Krosby’s full October 2020 market commentary, “Push and Pull" (PDF).
References include the following: Associated Press, Barron’s, Bespoke Investment Group, Bloomberg, CNBC, CNN, Cornerstone Macro Research, Evercore ISI, The Financial Times, Goldman Sachs, Morgan Stanley, The New York Times, Oxford Economics, Politico, Real Money, Reuters and The Wall Street Journal.
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