Three Major Issues Coming Up That Could Make Or Break The 2020 Stock Market

TOPLINE

Second quarter corporate earnings are turning out much better than expected, and now investors are refocusing their attention towards fiscal stimulus plans, vaccine data, and the U.S. election, which could make or break the stock market’s run going into the end of 2020.

KEY FACTS

So far, 424 companies in the S&P 500 have reported second quarter earnings with 82% beating Wall Street expectations—the highest rate on record dating back to 1994, according to Refinitiv data. 

As earnings season winds down, investors are now closely watching for more updates on the next round of coronavirus stimulus from Congress, which remains deadlocked over key provisions like extending federal unemployment benefits.

While both Democratic and Republican leaders have expressed optimism that an agreement will eventually be reached, various market experts have warned that if the next bill continues to be delayed that could result in a market sell-off.

The other outstanding issue for markets is the November 2020 presidential election: Although Joe Biden surged in the polls since March, his lead has diminished somewhat in the last several weeks as the number of national coronavirus cases declines.

“The country seems too polarized for a ‘landslide’ election and investors should look for polls to tighten in the coming weeks and months,” says Vital Knowledge founder Adam Crisafulli, adding that there are also rising market fears about disputed election results given the large number of mail-in ballots this year.

“The [presidential] debates this year will be crucial… and the country will be watching these events very closely” given the lack of traditional campaigning amid the pandemic, he says, which could lead to further volatility in the polls.

A potential upside for the market could come from more positive vaccine data, which could arrive as early as this fall, however: Several companies are leading the way in finding a treatment for coronavirus, including Moderna, Pfizer and Novavax.

Key background

While the consensus among many investors is that stocks will decline if Biden defeats Trump for the presidency, some experts disagree: “I think people will view it as the storm being over and that will help restore confidence in the markets,” says Lewis Altfest, chief investment officer of Altfest Personal Wealth Management. Though Wall Street remains apprehensive about a tax hike under Biden—who has pledged to rollback Trump’s corporate tax cuts and business deregulation—“we’re past that, we have too much debt and we’re going to have to raise taxes regardless” in order to pay for all of the coronavirus stimulus, Altfest says.

What to watch for

Rising U.S.-China tensions, which some experts have dubbed a “new Cold War.” Diplomatic relations between the world’s two largest economies have continued to deteriorate, with disputes over a range of matters including trade, Hong Kong, Huawei, Taiwan, the South China Sea and several human rights issues. The latest disagreement stems from Chinese technology companies like TikTok, which the U.S. claims is collecting data on Americans for the Chinese government. After initially threatening to ban the social media app, President Trump said earlier this week that he would give tech giant Microsoft the go-ahead to pursue an acquisition if a “very substantial” portion of the proceeds go to the U.S. Treasury. That sparked outrage in China, with several state-run media outlets calling it an “open robbery” of a Chinese tech company. “Alongside the other fronts of U.S.-China tensions, the growing tech confrontation further troubles the viability of the phase one trade deal,” Evan Rees, Asia Pacific Analyst with Stratfor, a RANE company, recently told Forbes.

Tangent

Big Tech companies, which are among the best-performing stocks so far this year, also continue to be in the regulatory crosshairs of Washington. Apple, Amazon, Facebook and Google have all been reported to be the subject of various antitrust probes, with their respective CEOs testifying before Congress last month. “Investors just aren’t concerned at all after years of fruitless actions and empty threats,” argues Crisafulli. “This boy has cried wolf way too many times for markets to be concerned.”

Further reading

Here’s What China Says About TikTok Being Sold To Microsoft, Potential Ban (Forbes)

Slashing $600 Unemployment Benefits Would Be ‘Absolutely Devastating’ For U.S. Economy (Forbes)

Here’s Why Your Federal Unemployment Benefits Could Be Delayed For Months (Forbes)

We Looked At How The Stock Market Performed Under Every U.S. President Since Truman — And The Results Will Surprise You (Forbes)

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