It was a miserable week for the market with some of the biggest losses since the Covid crisis meltdown in February and March. Even some very good earnings reports were not enough to stem the tide of selling.
The reasons for the selling are painfully obvious. First, there is a surge in the number of Covid-19 cases, which has resulted in new partial lock-downs in France and Germany. While cases are rising to record levels in the U.S. as well, there doesn't seem to be much enthusiasm for more lockdowns as the mortality rate is not rising nearly as fast as positive tests.
There is growing concern that the rise in Covid cases will slow economic progress, but there appears to be confidence that things will open up as vaccines and better treatments become widely available. So while Covid is a market worry many market participants believe that it will be overcome sooner rather than later.
The bigger problem for the market this week is the upcoming election. The issue the market is grappling with isn't just who might win but whether there is going to be a contested election and how long it might take to resolve the issue. On top of that, there are worries that the election could trigger civil strife for a variety of reasons. Retailers in large cities such as Washington D.C. are already taking steps to be ready should that occur.
The uncertainty surrounding this election is unlike anything we have ever experienced before and as the old saying goes the market hates uncertainty. Market players are likely to stand aside until they have at least some level of confidence that there will be a winner on Election Day or soon after.
The main thing that is keeping some bids under the market is that once the smoke clears stocks should be in good shape to recover quickly. Many names are being punished without any real justification and they will come back quickly when conditions improve. The problem is that we just don't know when that might be.
At this point, there isn't much to do but stay patient and be ready to go to work when conditions shift.
Have a great weekend. I'll see you on Monday.