Stocks continued to move lower, erasing more of the gains achieved during the third quarter as a loss of momentum has investors reevaluating valuations. The momentum in U.S. equities, particularly technology stocks, had fueled a tremendous rally. But with that momentum lost, it is now hard to find a catalyst to push stocks higher. The primary driver for asset price gains had been the amount of monetary and fiscal stimulus put into the economy in the late first and early second quarter of the year to offset the pandemic’s economic impact.
This stimulus led to significant gains in U.S. stocks as it made its way into the system. Given the lack of additional stimulus and the uncertainty surrounding the upcoming election and future tax policy, the catalyst to move stocks higher needs to be either fundamental underlying performance or expansion of market multiples. Neither possibility seems likely in the next few quarters. I remain cautious on stocks until the election outcome is known.
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