There has been recent news about a record number of COVID-19 cases in the U.S. Is this something to fear?

I don’t think it will affect the stock market badly as people knew that there was a high chance of a second wave when the earlier lock-downs in the States ended. It is a predictable event. The American government and people will greatly resist the same kind of closures and restrictions imposed earlier this year. They struggle with even the basics like wearing masks. I think the pandemic will rage over there for a while more.

This isn’t necessarily bad as it does build herd immunity, thus reducing chances of a pandemic coming back again. This is the strategy followed by Sweden, which is a pretty advanced country. Countries which don’t have a wide wave of infections have to be more cautious about opening up again, suppressing economic activity for longer. Time will tell which strategy will work out better.

Worst is Behind Us

Still, I think the worst of the market turmoil is behind us. Economic data will continue to improve and there is pent-up demand. Clearly there are some companies which are thriving during the pandemic. We have also been gifted with a buoyant stock market that will likely last for years, given the ultra-low interest rates. There aren’t a lot of other places that money can go that will earn a decent return.

It’s interesting to note that most professionals who tried to time the market recovery have missed out the rally. There was a recent Bloomberg article that they would suffer 30% losses just by missing out the best 5 days of the rally. Time in the market consistently beats timing the market. There is still a lot of cash sitting on the sidelines, and FOMO just keeps on growing.

The Real Risk

The thing that has gotten me worried are the U.S elections in Nov, as it is a wild card. The risk of a Biden presidency is growing, and both houses can be swept by democrats. This is traditionally viewed by the markets as a bad thing, as there will likely be tax hikes and more regulations. Most of the tech stocks I own would be affected.

Most polls show Biden leading in the swing states by wide margins. However, these polls should be taken with a pinch of salt as at around the same time before the last election, they predicted that Hillary Clinton had a 70%-90% chance of winning. Yet Donald Trump won decisively through the electoral college. Same thing might happen again, and no one should underestimate him and his followers.

At the same time, maybe a Biden presidency won’t be so bad for the markets? Markets were pretty good in Obama’s time. It’s really hard to predict.

There are about five months more till the U.S elections and there are plenty of things that can still happen.

We’ll see how it goes.

6 thoughts on “Should we fear a second wave?

  1. If you really observed the platform that Trump / Republicans stood on, it rhymes with aspirations of majority of citizens in any country: Immigration control, security (strong military & police), conservative judges, and less tax & regulations. If only he was articulate & empathic. This is his election to lose as he’s the incumbent.

  2. Hi FI35,

    Guess even if the second wave hits, people with money in the stock market will have no time to be overly concerned. Just look at the US stock markets. Furthermore, actually the pandemic is just getting worst in Brazil, India etc, two countries with a very large population but everyone seems immune to news already.

    If Biden wins, his tax plan has most impact on rich household. On the business side, Biden has pledged to raise the corporate rate from 21% to 28%, but it may be progressive, which he did not explain.

    I do not think he will be silly enough to immediately cause a stock crash straight after his winning (i.e. if he wins)!

    Just my two cents thought.

    1. Hi Rolf, i feel Biden will cause a stock market crash just by winning… Not sure what he stands for now either. At least with Trump I know business will have low taxes and interest rates

  3. Apart from Ronald Reagan, most recessions in recent decades have occurred under republican prez, while recoveries tend to coincide with democrat prez.

    Actually over 20-30 years, whoever is prez doesn’t really matter. Historically the prez doesn’t have a significant impact on stock markets.

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