Near-term could be challenging
A bumper day of tech earnings on Thursday failed to inspire confidence in investors, with Europe in the red and US futures more than 1% lower ahead of the open on Wall Street.
It’s been one of those weeks, reports on the last quarter have been very encouraging and ordinarily the mood would be far more buoyant. The US recovery in the third quarter was very strong, big tech delivered more earnings beats and even Germany, France, Italy and Spain have this morning recorded above expected growth data for the third quarter. Unfortunately, this doesn’t tell the full story.
As Christine Lagarde alluded to on Thursday, the recovery in the third quarter has exceeded expectations but the fourth quarter is shaping up to be painful. The data is great but it’s already old news, it won’t help as economies are forced to shutdown again. There’s no momentum, no v-shapes, just an extremely challenging winter that is likely to be harder than the spring.
This is what makes the failure on Capitol Hill all the more appalling. When politics takes priority over the good of those they govern on behalf of, something is seriously wrong. Now we face an election that could bring with it considerable uncertainty at a time when Covid cases and hospitalizations are rapidly on the rise.
This hasn’t been the best week for investors and the next few sessions may not see a dramatic improvement. Covid will continue to be a major downside risk, especially if we see the US going into lockdown in the way that’s now happening across Europe. There are upside risks as well though.
The election may go quite smoothly and lawmakers may return and quickly come to an agreement without the distraction of the election. The Fed was exceptional earlier in the pandemic and there may be some muscle memory there, with the panic that delivered those remarkable days being less evident. A Covid vaccine would surely lift the mood. It’s not all doom and gloom. But there may be some more downside to come yet.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.