Alfred E. Market: What, Me Worry?

There are multiple factors that could eventually cause investors to take money out of the market... SPECIAL OPPORTUNITIES [The Oxford Club Special Opportunities]( Alfred E. Market: What, Me Worry? Matt Benjamin, Senior Macroeconomic Analyst, The Oxford Club [Matt Benajmin] They say bull markets climb a wall of worry. That is, investors in a rising market continue to take on risk and thereby drive stock prices higher in the face of worrying factors. And the higher the market goes, the more these concerns eat away at investor confidence. Today, there are multiple factors that could eventually cause investors to take money out of the market and keep it on the sidelines, driving major indexes down. Let's take a quick look at a few of the major factors affecting the market and see just how worried we should be... Breaking Down Your "Worry Factors" The election: This is an easy one. The haywire, chaotic presidential debate on Tuesday evening only increased fears in the market that the upcoming election could be contested. Markets hate uncertainty, and major elections often deliver just that. As a result, futures contracts on the CBOE Volatility Index (VIX) - a measure of market anxiety - are showing a dramatic increase around the coming election. Last Thursday I wrote about why you shouldn't fear the election outcome. But that analysis assumes a definitive outcome soon after Election Day on November 3. I won't (and can't) predict how the election will play out, but I'm still buckling my seat belt for a potentially wild market ride early next month. Worry factor: Medium-high, short term. The tech boom: Tech stocks have led this bull market since the coronavirus crash in February and March. But the spectacular run of new "defensive" stocks like Zoom (Nasdaq: ZM) may soon come to an end. That may, however, be a good thing. If investors begin redistributing capital away from mega-tech stocks and into the broader market, it's a sign of optimism. Plus, we may be witnessing the beginning of a whole other tech boom. Worry factor: Little to none. Fiscal stimulus: The massive federal response to the COVID-19 crisis - about $2.5 trillion in stimulus spending so far - has provided a robust bridge for individuals and businesses until the economy is again fully functioning. But most analysts agree that more is needed, and Congress and the White House continue to battle it out to ink a deal on the size and content of further COVID-19-related spending. It's possible that another stimulus bill, perhaps $1.5 trillion to $2 trillion in size, will pass this week or next. But lawmakers are eager to return to their districts to campaign. So, more fiscal stimulus - and new checks in the mail - are far from certain. At this point, I wouldn't bet on it. Fortunately, the economy doesn't seem as dependent on additional government stimulus as many analysts first thought, and people are finding ways to work around the impact of the virus. Worry factor: Medium, short term. The Federal Reserve: Our central bank has done wonders to prop up the economy during this crisis (though some analysts say the Fed is going unchecked). The Fed's response so far includes near-zero interest rates, securities purchases, massive lending programs to businesses and banks, and a new promise to allow inflation to run hotter, among other measures. Yet the Fed at this point seems a bit spent, and markets reacted unfavorably recently when Fed Chairman Jerome Powell seemed to suggest there will be no new major stimulus programs in the near future. I would agree that the Fed will likely stand pat for the moment, but that could change abruptly if the economy or the markets see another major leg down. Worry factor: Very low, short term to medium term. COVID-19: For obvious reasons, COVID-19 is probably the biggest worry for the markets right now. And as you can see, all the factors I've already listed are closely linked to the course of the pandemic and the proximity of a vaccine. Unfortunately, it looks like there may be a second wave of COVID-19 cases developing in many nations, especially in Europe. And as we saw in the first wave, the U.S. tends to follow what happens across the Atlantic. The good news here is that this second wave seems much less deadly than the first, with hospitalizations and deaths trending much lower. There are many explanations and interpretations of why this is so, but many seem positive, from better treatments to potential growing immunity. Worry factor: Low to medium, but highly variable. Oh, One More Thing... In a market like this, there are many things to worry about if you're an investor, and they do add up. However, the investment community is quite sophisticated and doesn't tend to turn a blind eye to any worrying factors. It digests them and spits out its verdict by taking on risk or avoiding it. There is always going to be risk when investing, no matter what the market looks like. It's just a matter of knowing how to play it. Enjoy your weekend and stay safe, Matt [The Oxford Club] You are receiving this email because you subscribed to Oxford Club Special Opportunities. Oxford Club Special Opportunities is published by The Oxford Club. Questions? Check out our [FAQs](. Trying to reach us? [Contact us here.]( Please do not reply to this email as it goes to an unmonitored inbox. 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