The risks. Although the reopening is going better than expected and is clearly having positive economic effects, we also certainly face risks. The biggest of these is if the local outbreaks turn into local shutdowns (which would have negative economic effects) or, even worse, a national shutdown. At this point, that outcome doesn’t look likely, but it remains a possibility.
Another potential risk is that, even with the reopening, consumers will be slow to return and spending growth will not return to what was normal any time soon. Again, so far, this has not happened despite the outbreaks, but it remains a risk. That said, spending remains strong and has come back after some weakness, so the hard data remains positive.
The Markets: Responding to Better News
For the financial markets, the past week has been a good one. On the medical front, markets have responded to the stabilization in the new case count and encouraging news on vaccine development. On the economic front, corporate earnings are coming in somewhat better than expected. Overall, markets remain supported by ongoing positive developments. While risks remain, the good news is that as we get more data, markets seem to be developing a firmer foundation.
Biggest Risks Still Moving Behind Us
The real takeaway from this past week is that while an expanding second wave is still possible, the data suggests that this wave will be brought under control, just as the first wave was. If the outbreaks continue to worsen and spread, it could put the recovery at risk—but this possibility looks less likely this week than last. In some sense, a second wave was always likely, as part of a necessary process to figure out how to reopen effectively while still keeping the virus under control. We are doing just that, and even as we go through that learning process (with the consequent pain), the thing to keep in mind is that many of the biggest risks are still moving behind us. The most likely case appears to be continued recovery.
Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged, and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.
Michael E Spears is located at 2906 Hull Road, Kinston, NC 28504 and can be reached at 800.655.9487.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.
Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, at Commonwealth Financial Network®.
© 2020 Commonwealth Financial Network®
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