Market Review – October 2020

In this month’s market review, our Chief Options Specialist, Jason Ayres, reflects on the October market conditions.

Markets continued to trend upward through Q3 in what is now considered a “K” shaped recovery. Tech industries continued to trend upward, while hospitality and tourism continued to depress.

October was choppy for all three of the major indices (TSX, SPX, and NDX) as investors continued to focus on the U.S. election, new stimulus package hopes, and the promise of a vaccine.

The U.S. Election is a clear source of uncertainty in the near term. There are two possible outcomes:

• A democratic senate will likely be positive for the markets because it means more stimulus and easier passage of legislation. Stimulus is likely to fuel asset purchases and any money not going into stocks will be spent by consumers on goods and services. One risk is that a democratic sweep could result in quick and aggressive policy changes, although we don’t think this is likely.
• If republicans keep the senate, we’ll see more gridlock. Stimulus may take longer or it may be smaller. which would likely result in market volatility that will eventually settle into a new normal.

Regarding the COVID-19 pandemic, the market has already priced in a second and third wave. In the first wave, investors didn’t know how to price in changes in the economy and the uncertainty led to volatility.

Now, there is more known and understood and new information can be as much an opportunity as it can be a risk. When an economy is struggling, investors seek growth opportunities often found in the tech sector.

Historically low interest rates likely won’t be going up until at least 2023.

Companies continue to beat estimates and raise guidance. We are seeing investors revising their estimates upward, which means analysts are pricing in future growth.

In the end, short-term volatility in the stock market is inevitable based on current headlines. But, we must take the long view and recognize potential for significant gains on the other side of this near-term crisis.