The week ended with a decrease in demand for shares of companies and a strengthening of the US dollar, which is quite logical against the background of several negative factors.
The COVID-19 pandemic was the main negative factor for Europe, where the idea of a second lockdown is getting real. The US market suffers from both coronavirus infection and the uncertainly of the US election result.
The past week has shown that investors are not ready to bet significantly, both on the further growth of stock indices and on their fall.
Throughout the week, the markets have been closely following the negotiations between Nancy Pelosi, speaker of the lower house of Congress, and Finance Minister Steven Mnuchin. As I expected, the negotiations came to nothing. Empty promises of progress in the negotiations kept investors interested in the topic, but nothing more. In general, the dynamics of the main stock indices in Europe and the US decreased, but in general, they still remain in the sideways dynamics. It fully confirms my thesis about investors’ indecision and an apparent reluctance to take risks on the eve of the election outcome, as their result is still unpredictable. The latest election debate has not revealed an evident leader in the presidential race.
Another global negative factor is the surge in coronavirus infection in Europe and North America. Europe is facing a full-fledged second wave, and in North America and specifically in the United States, the first one continues to grow. Recently, the number of people infected with COVID-19 and deaths has only been increasing day after day. The lack of a vaccine is another negative factor for the demand for risky assets. The failure of AstraZeneca’s trials of the vaccine has only led to a further drop in demand for stocks.
Against these events’ backdrop, investors stopped paying attention to the outgoing economic data that generally show a continuation of the slow recovery of the US and European economies. It seems that they are not sure if the recovery is sustainable due to the surge in the coronavirus pandemic and the lack of a vaccine against it.
Thoughts and conclusions:
In general, summing up, investors’ activity remains low on the wave of high volatility in asset prices and, as a result, stock indices. I expect that the overall dynamics of the financial markets this week will continue. Investors need to keep a close eye on the COVID-19 situation and the updated economic data.