Broker Check

Forget the election and keep an eye on the vaccine

| December 15, 2020

If your still connecting election year politics with stock market investing you need to disconnect the two.  The market has moved on.  Right now the vaccine (vax) is center stage.  As long as positive news on the vax continues it can underpin the stock market.

Covid numbers are spiking but it appears to be the “man-made” shutdowns, not new cases, that could pose a bigger risk to the market.  We could see this push-pull between the vax versus cases and shutdowns continue to effect the markets for several weeks to come.

However, the market may mostly care about the death rate.  I saw an in-house analytic that showed the market was highly correlated to deaths.  Initially the high death rate coincided with the quick and steep drop in the markets.  As the death rate decreased the market recovered quickly. 

New virus cases are increasing but we aren’t seeing the higher death rates. Nor are we seeing a large drop in the market, rather new highs.  If we continue to see the market shrug off rising numbers and even additional shutdowns, perhaps the correlation with death rates will persist.  If so, consider buying any number/shutdown related dips if it fits your Investment Policy Statement (IPS).

We also can’t rule out a bigger market correction occurring on the heels of wide scale shutdowns.  Although it could also be on valuations, an eventual sell the vax news mentality, or always the specter of an unknowns.  

But weakness and pullbacks on shutdowns or new cases should be temporary and if you believe this will pass you could consider buying and even aggressively buying a sizable pullback (correction).  Further, shutdowns stand to hit small biz more so than large companies represented in the S&P 500.  In fact, shutdowns will likely help well capitalized companies that can weather the storm AND therefore pickup market share. Larger companies have resources to abide by new virus regulations, invest in safety and in short can stay open. An advantage small companies especially ma and pa do not.

Stimulus would help tip the scales in the markets favor over the SHORT run and give these small biz a life line to muddle through the rest of the pandemic.  Otherwise if we see small biz close their doors when the economy really restarts it would take much more time, money, and effort to reopen (and many more won't make it).  If you own a small biz think how much it took you to open and get your biz going and if you turned off the lights it's not that easy to just flip a switch to open back up right?  Is that worth the debt and excess money created by stimulus? More on stimulus and debt if/when it happens…  SPOILER it's likely not all doom and gloom.  Stay tuned.

Based on your Investment Policy Statement (IPS) I would be at least close to fully invested accordingly and not sitting out due to politics, virus, or shutdowns at this time while looking to rebalance or otherwise buy a correction. But this does take conviction in the future so you can ride out the volatility without hitting the sell button at the wrong time. 

If you don’t have an IPS now is the time to create one or have someone help create one before things get dicey.  A well thought out plan in times of calm is an invaluable guide, and potentially profitable one at that, to follow when the markets become volatile. 

The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment.  The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss.  S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market.  Investors cannot invest directly in an index.