Global markets as volatile as ever amid surging Covid-19 cases and upcoming US elections

Stocks are tumbling in the US and Europe as coronavirus infections rise and the US presidential elections loom. The S&P 500 fell 3.5% on Wednesday, 28 October, while the Dow Jones Industrial Average was down 3.4%. Both indexes suffered their worst day since 11 June. The Nasdaq also dropped 3.7%. Across the ocean, European stocks were similarly hit. The German Dax index fell 4.2% to its lowest level since late May. The French CAC 40 slid 3.4%, and the UK’s FTSE 100 dropped 2.6% for its worst close in six months.

The downward spiral continued on Friday, 30 October, as stocks suffered their worst week since March, the start of pandemic restrictions. The S&P 500 was down 1.2% and ended the week 5.6% lower. The Dow fell 0.59% and ended the week 6.7% lower. The tech-heavy Nasdaq dropped 2.4% lower for the day and tumbled 5.5% for the week. Tech giants suffered despite turning out solid earnings reports. Apple’s quarterly results beat Wall Street estimates, but the smartphone behemoth fell 5% after it revealed that iPhone revenue missed the average of analysts’ estimates. Amazon lost over 1% after it said it planned to spend more than analysts estimated related to Covid-19, despite beating analysts’ predictions in quarterly sales. Twitter also took a hit and fell 14% after reporting much fewer new users than analysts had estimated, despite third-quarter sales beating predictions. On the plus side, Google’s parent company Alphabet rallied 8% after it returned to growth in the third quarter following a decline in the previous period, reporting a 15% rise in earnings.

Renewed lockdowns across Europe in France, Germany, and the UK, where the virus’s second wave has arrived, and the final few days of the US presidential campaign, which has seen Donald Trump and Joe Biden go neck-and-neck, contributed to increased market volatility this past week

The MSCI All Country World index of global equities fell 1.2%, down 5.3% over five sessions, its steepest weekly sell-off since March. Renewed lockdowns across Europe in France, Germany, and the UK, where the virus’s second wave has arrived, and the final few days of the US presidential campaign, which has seen Donald Trump and Joe Biden go neck-and-neck, contributed to increased market volatility this past week. Adding to this was the continued deadlock over the coronavirus stimulus package in the US, which may persist until after the election on 3 November. Coronavirus cases in the US rose by a record 100,233, coming to a total of over 9 million. The total number of cases in the UK was over 1 million, as the country is primed to enter a national month-long lockdown again. Covid-19 cases in France also stood at more than 1 million, while in Germany they are over 500,000. The Europe-wide Stoxx 600 lost more than 5% this past week.

Oil posted its largest weekly drop since March as renewed lockdown measures threatened to hurt recovery in demand. Futures fell 1.1% on Friday and ended the week below $36 per barrel. The drop in oil price hit Middle Eastern stocks, as Kuwait’s Premier Market Index dropped 2.1%, the biggest loss in the region, followed by a 1.6% slide in Dubai. Conversely, Asian stocks are being considered more appealing and safer from coronavirus and the US elections, after declining Covid-19 cases in Asia and renewed optimism over China’s economic growth. A rally in Chinese technology stocks like Tencent Holdings Ltd. and Alibaba Group Holding Ltd. have boosted the MSCI Asia Pacific Index. GAM Investment Management, Robeco Hong Kong Ltd. and Nordea Investment Funds SA see regional shares rising regardless of who wins the election. The daily new virus cases in Asia Pacific have fallen by about a third from a month ago and China’s economy has regained all it lost in the first half.

President Trump winning again could benefit US equities and strengthen the dollar while thwarting Asian stocks and currencies

The next week may be even more eventful for stocks, with Republican Trump and Democrat Biden headed to the pools for the presidential elections on Tuesday 3 November. President Trump winning again could benefit US equities and strengthen the dollar while thwarting Asian stocks and currencies, according to strategists at JPMorgan Chase & Co. “Asian assets are likely to be sensitive to a continued Trump Presidency as it would likely mean further US-China conflict on trade, technology and investments,” they said. A Biden win may potentially mean a weaker dollar.

There are some key areas Wall Street thinks will affect the performance of American stocks, such as taxes, infrastructure spending, and each candidates’ plan for the energy industry. Biden wants to increase the corporate tax rate to 28%, from the 21% under Trump, which Trump had brought previously down from 35%. This had provided a boost to American companies’ profits and spurred a rise in share buybacks that have in turn helped support the equities market. The Wall Street bank estimates that if all of Mr Biden’s tax proposals are implemented, it would reduce S&P 500 earnings by 9%.

If Biden wins, investors expect a large boost to infrastructure spending as Democrats look to fund their own large-scale projects

If Biden wins, investors expect a large boost to infrastructure spending as Democrats look to fund their own large-scale projects. It could lift stock prices and help to offset increased corporate taxes that Biden plans to pursue, analysts say. “A large increase in fiscal spending, funded in part by increased tax revenue, would boost economic growth and help offset the earnings headwind from high tax rates,” Goldman Sachs strategist David Kostin said. That would benefit companies in the construction industry. Michael Mullaney, global head of research for Boston Partners, said that Mr Biden’s infrastructure spending plans would provide a large boost to the economy that would “have a much bigger fiscal multiplier than anything Trump has put on the table to date”.

In terms of energy, Strategas, a boutique research and advisory group, said a Trump victory would be very positive for the sector. Keeping to his anti-climate change views, Trump supports energy tax subsidies and rolling back clean air emission standards as well as backing the use of federal lands and waters for drilling. In contrast, Mr Biden has pledged to “transition away from the oil industry” and has also outlined a plan to spend $2tn in his four years in office to cut carbon emissions and electrify the transportation sector, among other initiatives. Strategas said the stocks of solar and wind energy providers would prosper as a result. Eliminating subsidies to oil and gas companies and a ban on fracking on federal land following a Biden victory would deal a further blow to traditional energy groups, analysts say.