A lab technician fills a 96 well plate with antibody tests
Hagen Hopkins/Pool/Getty ImagesThe stock market’s late-summer levitation continued, bolstered by hopes that treatments or vaccines for Covid-19 lie just over the horizon.
The optimism—spurred by a late Sunday announcement of the Food and Drug Administration’s emergency-use authorization of convalescent blood plasma to treat coronavirus patients—was undented when the agency’s head was forced to walk back the claims for the therapy two days later. Abbott Laboratories ’ (ticker: ABT) announcement of a rapid $5 Covid test further raised hopes that we can coexist with the virus while we await a safe and effective vaccine.
Investors have a lot at stake in the race for vaccines, both in the companies developing them as well as what it would mean for the economy and financial markets. Those bullish expectations also hinge on public acceptance, despite various polls showing that about a third of Americans wouldn’t accept a Covid-19 vaccination, even if it were free.
In any case, the S&P 500 index and the Nasdaq Composite ended the week up 3.26% and 3.39%, respectively, on pace for the best August since at least 2000, with the Dow Jones Industrial Average just 3.04% short of its February record, ahead of its Monday revamp. On the basis of history (to the extent that means anything when the word of the year for 2020 is likely to be “unprecedented”), the stock market may be perched rather uneasily at these heights.
If you want to enforce social distancing, here are some factoids that are sure to get anybody who’s not a market nerd looking for a graceful exit. According to the venerable Stock Traders Almanac, September is the cruelest month for the Dow, falling 41 of 70 times since 1950, with an average decline of 0.6%. In election years, the win-loss percentage is about the same, with the Dow down 10 of 17 times in September, with an average drop of 0.4%.
Looking ahead, JPMorgan’s global quantitative and derivatives strategy team led by Nikolaos Panigirtzoglou writes that financial markets face two key tests in coming months. The first is the FOMC meeting that winds up on Sept. 16, in which the team members look for the panel to outline additional support for its new policy framework (discussed above). They think failure to make further pledges on forward guidance on rates or additional securities purchases would be a disappointment. We’d aver that Powell & Co. already has effectively made a Mario Draghi–style pledge to do whatever it take to keep money supereasy as long as unemployment remains high and inflation doesn’t get out of hand.
The really big unknown is the presidential race, which the JPMorgan team contends will tighten further as campaigns kick into high gear. The lead of former Vice President Joe Biden over President Donald Trump in polls and betting markets has narrowed recently. Even more importantly, margins have gotten still tighter in key battleground states that will determine the outcome in the Electoral College.
Even before considering the ultimate hell of a contested presidential election, there’s lots more political drama to play out in the months ahead. Both candidates would probably favor more fiscal stimulus—a plus for markets, the JPMorgan strategists say—but a more decisive win by either with his party also controlling Congress along with the White House would increase the likelihood of a new spending package. Meanwhile, the tug-of-war over new aid to replace expired pandemic-related benefits will resume. Fasten your seat belts.
Write to Randall W. Forsyth at randall.forsyth@barrons.com
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August 29, 2020 at 07:32AM
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Markets Rise on Covid Hopes. But Ahead Is a Treacherous Fall. - Barron's
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