- Phil Orlando, Federated Hermes’ Chief Equity Market Strategist, views the election and rising COVID-19 cases as a threat to the S&P 500.
- Economists have lowered their forecast for the fourth quarter and are forecasting an annual economic decline of 4.3%.
- Growing uncertainty and nervousness in the markets amid a declining economy pose a major threat to US stocks.
Phil Orlando, Chief Equity Market Strategist at Federated Hermes, names two possible catalysts for a downward trend in the S&P 500.
First of all, the fund manager said a democratic wiping out of the elections would pose specific threats to the markets.
Second, Orlando raised concerns about the rising COVID-19 cases in the US as the winter season approaches.
A multi-trillion dollar stimulus package and vaccines could offset both of these negative factors, the executive said. But with stimuli and vaccines far from the horizon Another slump in the S&P 500 could occur.
A democratic election victory is a problem for an already ailing S&P 500
The choice remains an ongoing representation of the S&P 500’s fourth quarter performance.
Initially, strategists drew Concerns about the possibility of a controversial election. Over time, fear shifted towards additional regulation and taxation in a Joe Biden presidency.
Orlando emphasized Biden’s tax policy would put pressure on individuals and American businesses. Speaking to CNBC’s Trading Nation, he said:
“What could a change in the fiscal policy regime look like next year, if at all?”
The US stock market has performed relatively well in the past under tax intensive administrations. The difference is that the S&P 500 is currently in a vulnerable position in 2021.
At a time when economists are sounding the alarm in severe stagnation, additional pressure could slow the S&P 500 down.
This week, 52 economists surveyed by the National Association for Business Economists forecast lowered their forecast for economic growth.
In June, economists forecast the US economy to grow 6.8% in the fourth quarter. On October 5, economists lowered their forecast to 4.9% and forecast an annual economic decline of 4.3%.
Economists fear that the slowdown in economic growth will affect other key metrics such as the unemployment rate.
While the S&P 500 does not directly reflect the economy, strategists find that they are not entirely disjointed.
COVID-19 cases are rising continuously with a high baseline
The number of COVID-19 cases in the US is increasing with no signs of a clear peak.
The unexpectedly positive COVID-19 test by US President Donald Trump heightened fear in the markets. Check out the video below:
Orlando says he fears a third wave of cases, particularly as the colleges restart. Markets expected vaccines to be delivered before the elections, but that is becoming increasingly unlikely.
Moderna recently told the FT that their The vaccine would not be ready for FDA approval before the election.
The worsening short term outlook for vaccines and rising cases pose a threat to the S&P 500. Orlando noted:
“We have already seen two peaks: the one that peaked in mid-April, [and] the one that peaked in mid-July. Many of us brace ourselves for a third climb after colleges are back in session. However, to some extent it can be mitigated if we can continue to make good progress on the vaccine. “
On October 2, US President Donald Trump tested positive for COVID-19. According to the head of Federated Hermes, this compounded the negative impact on the markets.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be regarded as investment or trading advice to CCN.com. Unless otherwise stated, the author has no position in any of the securities mentioned.