US Open – Downside risks despite desperate rally

A challenging month ahead

European stock markets are mostly lower on Tuesday, with US futures pointing to a similar open on Wall Street as the Trump relief rally quickly runs out of steam.

Days like yesterday highlight the desperation in these markets to find something positive to cling on to; anything that justifies buying in these highly uncertain times. I’m hopeful that a vaccine will become available late this year to those most in need and be widely available by the spring and this is probably much of the reason why the FOMO trade is holding firm.

But it doesn’t change the fact that we’re less than a month away from a once in a lifetime election, one that even in the best case scenario will be drawn out. Worst case scenario would be far, far worse.

Meanwhile, Congress is working hard to find a compromise on essential fiscal stimulus that will support the economic recovery through a tough winter. Another thing that may be supporting the FOMO trade. But they’re running out of time and there’s still a huge gap between the numbers being discussed.

Throw into the mix the rising Covid cases around the world and even accounting for the improvements in the treatment and survival rate, this is far from a backdrop that’s supportive of record markets. And that’s only the US. The UK has a possible no-deal Brexit to contend with on top of it all. That’s a lot of downside risk that may hurt these markets over the next month.

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