OCM Commentaries

Market Commentary 30th September 2020

By September 30, 2020 October 1st, 2020 No Comments

Politics, Pandemic & Stimulus: What’s Moving Markets Going into Q4

In a preview of what’s to come over the last quarter of the year, markets remained volatile over the week as investors digested mixed economic data, a messy US presidential debate and rising coronavirus cases on a global scale. At the same time, following months of debate, investors closely watched last-ditch efforts by US lawmakers to get a coronavirus fiscal stimulus package passed. With Brexit negotiations and a dramatic Presidential Election to come, we expect a turbulent quarter, with plenty of room for upside surprises as key sources of uncertainty are set to be resolved.

Investors Assess Stimulus Expectations

With Covid-19 cases on the rise across the US, all eyes are on a $2.2 trillion stimulus proposal by Democrats to help support economic growth. The negotiations between the Trump administration and congressional Democrats are reaching a critical juncture this week, with House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin due to speak again on the deal later today, with time running out to get a deal before the election in early November. If no deal is reached, Democrats are able to schedule a vote without Republican support. The sides have struggled to agree on the amount of spending, with Republicans unwilling to commit anything over $1.5 trillion in aid. Markets have become increasingly pessimistic about whether a deal can be done prior to the election, therefore any positive developments would likely provide a boost to markets heading into the fourth quarter of the year.

On the monetary policy front, echoing the recently announced Federal Reserve policy of allowing inflation to temporarily overshoot the inflation target, ECB President Christine Lagarde announced earlier today that the policy could be examined as part of the central bank’s strategic review. Lagarde’s comments are arguably the strongest signal yet that the ECB will change its goal after falling short of the 2% target for years despite continued monetary stimulus. The Fed recently agreed to start targeting an average inflation rate of 2% and giving inflation the room to overshoot and make up for earlier underperformance. This suggests that it is likely to keep monetary policy looser for longer, which would provide a strong signal to equity markets on long term expectations. The ECB has already pledged to buy as much as 1.35 trillion Euros in government bonds and other assets under its pandemic emergency program and is expected to announce further stimulus by the end of the year.

A Chaotic Presidential Debate

Markets are expected to display high levels of volatility over the next month ahead of this year’s presidential election. The race to the white house is attracting even more media attention than usual given increasing social unrest and rising levels of political violence across the nation. While volatility is expected ahead of the election in November, markets have also been bracing for some modest post-election chaos. Barring an extended delay in declaring the winner, volatility expectations would likely sink following the election, and the initial response should be positive for risk assets. While traditionally a Democrat victory would be negative for markets, given Biden’s more centrist approach, it is likely that markets would receive a Biden win relatively well, particularly considering the turbulence of the previous presidency. The response could be even stronger if Biden were to win while the Democrats carried the House of Representatives and the Senate, with much better odds of a large fiscal stimulus package.

Markets are pricing in greater volatility around the presidential election as a surge in mail votes raises the odds of a delay in declaring the new president. Since that risk is well anticipated, the expectation is that the market reaction could be modest if the winner is announced within a week. If a winner is not quickly declared, we could see further volatility. If the results are so close that they drag on until 14th December when the Electoral College will submit the final votes for the election, President Trump has already made clear that he would attempt to get the Supreme Court to declare him the winner.

For more information on the Race to the White House and our expectations, please see the attached Market Update document.

Q4 Growth Expectations

Ahead of Q3 data releases, economists are expecting record-breaking growth rates for many economies over the quarter as activity picked up momentum following coronavirus-induced lockdowns earlier in the year. After the initial pickup, however data suggests that the pace of recovery faded through the quarter, supporting expectations that growth in Q4 will be markedly weaker.

Although we expect activity to continue to come back from an extremely weak base following lockdowns, rising cases of Covid-19 in many economies have already prompted a re-tightening of social distancing in some areas and heightened the risk of similar measures elsewhere, constraining activity over the fourth quarter. Despite this, it is expected that the hit to activity from these measures will be much smaller than experienced in March and April.

Despite tightening restrictions, data from Oxford Economics suggests that underlying conditions have continued to improve, however the pace remains markedly slower than in previous months, pointing to a slower recovery in the winter months. The flash PMI data for September from some key advanced economies provide a similar message, with Eurozone and UK composite indices recording sharp falls over the month, largely driven by service sector falls. The US composite index only edged down, however recorded a moderate drop in services output for the first time since April. That being said, the soft end to Q3 is not expected to have a profound impact on growth figures over the quarter, with the overall Q3 data expected to show impressive growth on the recovery.

Key Events We Are Watching This Week:

  • Friday: US Non-Farms Payrolls
  • Monday: UK Services PMI for September

For anyone who wants further data to substantiate the position please review the attached Global Economic Update document and the Economic Dataset below.

Model Portfolios & Indices

Global stock markets continued to display high levels of volatility over the week as countries across the world battle with virus challenges, mixed economic data, and stimulus expectations. Over the week, the major indices experienced mixed performance on rising virus cases and policy expectations. The portfolios remained relatively flat over the week, benefitting from a high level of diversification in asset classes and geographies.

Looking ahead, we are optimistic on the medium-term outlook from here, accepting further volatility in the near term, but confident in our positioning, with well diversified portfolios which have been designed to weather these market conditions. Year to date, in comparison to the benchmarks, we have recovered from the March coronavirus decline, and we are in a strong position moving forward.



Important Information


Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value.  You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio.  The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations.  Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges.  Unless stated, income is reinvested into the portfolio.  The information contained in in this document is for information purposes only.  It does not constitute advice or a recommendation or an offer or solicitation for investment.


This Day in History


On this day in 1968, the first Boeing 747 jumbo jet rolled out of the company’s new factory in Everett, US. Thousands turned out at the ceremony to marvel at the giant new plane. It later became the most successful wide-body jet ever, with around 1,550 of the airplanes produced to date.


Have a great week,


Jason & Gina