Rocky October likely after volatile September as investor risks loom

The October market story is really complicated.

If you thought September was confusing, October is not likely to be any better, and it could be significantly craggier.

That’s because the “buckets” that have moved markets on various days in the past few months are all potentially in work together:

1. Elections: Uncertainty over whether there will be a winner on election night, and President Donald Trump has signaled he may be unprotected to challenging the results.
2. Stimulus: Can we get a last-ditch deal between Nancy Pelosi and Steven Mnuchin? The markets moved quieten Wednesday when no deal was announced, so traders still care.
3. Reopening: Better economic data this week (Consumer Reliance, Chicago PMI, ADP Payrolls, Pending Home Sales) have to be balanced against an increasing sea of layoffs (Shell, Dow, Disney, Marathon Petroleum). There devise be more layoff announcements as earnings are announced.
4. Treatment/vaccine: Will there be any phase three trial despatch on the vaccine?
5. China trade war: Any retaliation by the Chinese is likely to fall on megacap tech and semiconductor stocks that are demand leaders.
6. Valuation: When Apple — the biggest stock in the U.S.— moves in a better than 20% trading range in a month, you be informed traders are not sure what is going on. Valuations wax and wane depending on the reopening outlook and vaccine hopes, none of which last will and testament be resolved any time soon.

All of this should be making traders nervous. With valuations high, there’s an hideous lot that can go wrong.

But there is a surprising amount of optimism, at least among the professional trading community.

“Nearly every day we get pecuniary news better than expected, and I still think that is what will win the day,” said Jim Paulsen, chief investment strategist at The Leuthold Categorize. “You have consumers buying. Housing and auto sales are strong. IPOs are coming back to life. “

What alongside a spike in infections?  Paulsen acknowledges there’s concern that a spike could slow down fourth-quarter vegetation, which is why he believes another stimulus package is important to keep the markets going. Aside from that, he offers a creative interpretation of how to look at a fourth-quarter spike: “The country will likely start focusing more on whether the death dress down spikes than the infection rate. Most of the country is operating much more safely than a few months ago, both in private and on the corporate level. So I think infections still matter, but the death rate is what will matter far more.”

More layoffs coming? “It’s not good, but look at the job growth. So far there’s probably less than 50,000 advertised layoffs, look at the ADP numbers. Over 700,000 jobs.”

As for valuations, many traders feel the mid-September correction, which saw the S&P 500 nip about 10% and 15%-20% declines in many megacap tech stocks, was just the tonic the market needed.

“A lot of the delicate hands got shaken out during the correction in mid-September,” said Alec Young, chief investment officer for Tactical Alpha.

“We are notwithstanding 200 points below the old high in the S&P,” he said. “The market may need a while before it can make a new high, but there are numberless risks of being out of the market than being in. As long as we get a fiscal deal, the market will grind higher.”

One endure positive note: As we enter earnings season, the early reports have been almost all positive, and earnings organize been slowly creeping up, not down.

“There are a lot of uncertainties, but there is so much going right analysts and companies are successful to revise their estimates upwards,” Paulsen said. “Wall Street is going to be revising up not just its fourth fourth, but it’s 2021 numbers as well.”

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