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The Stock Market’s Biggest Nervy Concern is a Familiar One

Last Updated September 23, 2020 2:31 PM
Joseph Young
Last Updated September 23, 2020 2:31 PM
  • Oppenheimer’s chief investment strategist John Stoltzfus is optimistic about the U.S. stock market in the long term.
  • In the short term, Stoltzfus pinpointed the resurgence of virus cases in the U.S. as the “real challenge.”
  • Scientists anticipate the pandemic to last until the end of 2021, and strategists expect the market sentiment to decline.

As the U.S. stock market struggles to recover from its recent pullback, strategists are cautiously optimistic.

John Stoltzfus, Oppenheimer Asset Management’s chief investment strategist, said high-quality stocks are “on-sale” from the recent pullback. 

Although the fair valuation of stocks and relaxed financial conditions buoy the stock market, Stoltzfus pinpointed one area of concern.

The Resurgence of COVID-19 is the “Biggest Nervous Issue” For the Stock Market

Speaking to CNBC, Stoltzfus said the resurgence of COVID-19 is the “real challenge.” 

New COVID-19 cases in the U.S. per day. | Source: The U.S. Centers for Disease Control and Prevention 

In the past week, the number of virus cases in the U.S. started to spike. The resurgence comes as the U.S. economy is beginning to recover from a five-month-long drought.

The negative sentiment around economic recovery poses a major threat to the near-term performance of the U.S. stock market. 

The declining outlook of the pandemic in Europe is further worsening investor confidence in global markets. Spain, France, and other major European nations have recorded a significant upsurge in cases.

Consequently, the S&P 500 index has dropped by 7.3% from September 2 to September 18, within 16 days.

stock market
The 1-month performance of the S&P 500. | Source: Yahoo Finance

Stoltzfus remains optimistic in the medium to long term trend of the U.S. stock market.

The “froth” in “mega-cap” stocks has subsided, giving the stock market a fairer valuation than in August.

Still, the strategist, who helps oversee $28 billion in assets under management  at Oppenheimer, said a major challenge remains. He noted:

“The biggest nervous issue is just this resurgence of Covid that we’ve seen around the world now. That’s the real challenge.”

For the S&P 500 to rally to its peak in early September, strategists say multiple factors are at play.

The development of vaccines, the reopening of the economy, and the election have to signal an improvement in job growth.

If investors don’t see the prospect of a recovering unemployment rate,  then Stoltzfus emphasized the stock market would show nervousness.

As long as the virus cases in the U.S. continue to increase, the market sentiment would likely remain pessimistic. The strategist explained:

“You want to see a result that comes out of this that is friendly to the taxpayer. That’s friendly to business, That’s friendly to creation of jobs — overall a good story for the economy. Anything that challenges that will likely see the markets continued to show nervousness.”

The U.S. consumer confidence is declining as the pandemic gets prolonged. Watch the video below:

Scientists Don’t Expect the Pandemic to End Before 2022

Even with the anticipation of vaccines by the year’s end, scientists foresee the pandemic lasting until the end of 2021.

Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, expects the virus to subside by late next year. 

But, during an interview with Business Insider’s Hilary Brueck, Fauci emphasized the best scenario would have to play out. 

The late 2021 prediction is not a conservative prediction and is based on the presumption that vaccines would arrive. Fauci said:

“I believe that by the time we get to the end of 2021, if everyone gets vaccinated and we continue to implement the public-health measures that I have been talking about incessantly over the last several months — they’re not universally adhered to — if we do that, plus the vaccine, we’ll get to the point where the level of virus will be so low, and maybe even, you know, close to absent.”

The U.S. stock market is already rattled by the thought of delayed economic recovery. If the virus lasts until the end of next year, it could severely damage investor confidence and market sentiment.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.