A growing number of Covid-19 cases, pressure in Europe to shut down the economy and a very contentious election are creating great stock market uncertainty and that is pushing market players to the sidelines. It is fear of the unknown that is the big problem right now and it is made worse because there will be no great clarity for a while.
Markets started reacting overnight as The Wall Street Journal reported that both France and Germany were considering some form of economic shutdown as virus cases continue to surge in Europe. This possibility is causing fear that the recovering economy will be set back again and raises questions about what other leaders around the world might do.
The shutdown issue will have a big impact on the U.S. election, which becomes a referendum in part on an economic shutdown. There is an intense battle already in the U.S. over whether shutdowns do more harm than good and the debate is crystalizing as the election approaches.
Unfortunately for the stock market, this uncertainty is not going to go away anytime soon. It is reported by The New York Times here on Wednesday morning that only eight states expect to have at least 98% of unofficial election results reported by noon the day after the election. If the election comes down to just a few states it is pretty clear there will not be a winner declared for days and that is sure to be a problem for the stock market.
While the broad market is struggling with this tremendous amount of uncertainty, the good news is that many individual stocks are still holding up well. There continues to be optimism that the Covid crisis will fade as a vaccine and other treatments improve, but worries about the impact on the economy in the interim are starting to increase.
It is a very nervous and uncertain environment right now and we will need to wait it out. There simply is no benefit to trying to predict what will happen until the election occurs.
My game plan is to watch my individual stock positions carefully and do my best to protect capital. I'm far more concerned about price action in stocks than I am bout the indices. I see no reason to rush in and bottom fish but will be tracking my favorites and watching for opportunities.
The good news is that once the smoke of the election and economic shutdowns clear, stocks will be in a great position for a positive reaction, especially if they are fueled by another round of fiscal stimulus.
Buckle up and play stout defense, but this too shall pass.