After a very busy and stressful week for the country and markets, this week starts with some positive news regarding a potential vaccine for COVID-19. The preliminary results increase the odds that more than one effective treatment will be approved and become more readily available during next year. Stocks soared to new highs after pushing toward all-time highs last week. Treasury yields also rose on the news to near Election Day highs.
Over the next few months until Inauguration Day, I expect two key forces to drive markets. The first is the potential for an additional economic stimulus deal to be approved by Congress and signed by the president. If a deal gets done, it would be positive for stock prices and negative for bonds. I am currently skeptical about whether a deal will be reached, given differences in the proposed size and focus areas. The second key driver will be the rising impact and resurgence of the coronavirus globally, offset by how quickly an effective vaccine or therapeutic treatment becomes available.
Given these large and somewhat competing forces, I expect that volatility will remain elevated, with significant swings in market prices.
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