What may drive a Q4 stock rally?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and insights.

It is the last day of 2020. You have survived a bizarre, frustrating and stressful year. Over a refreshing beverage, you reflect on the last three months of the year, when equity markets rallied another 10%.

Poll results, What may drive a Q4 stock rally?

Source: BlackRock Investment Institute with data from SurveyMonkey poll analytics. Note: Data does not include poll results from BlackRock social media accounts. 

After that refreshing beverage, 44% of you voted that more economic stimulus would be the primary driver of any late-year stock market surge. Three other responses: political events, a shift in virus dynamics – such as the discovery of a widely accepted vaccine – and “there was no 10% rally!” captured just under one fifth of the vote each.

In a similar poll of BlackRock portfolio managers, more monetary and fiscal stimulus narrowly edged out positive news on Covid-19 as the likely driver. As one portfolio manager noted, “markets stop panicking when policy makers start panicking.”

The joint fiscal-monetary coordination in response to the COVID-19 shock has been nothing short of a policy revolution. The combined sum of fiscal and monetary actions is covering the virus hit to the economy in both the U.S. and euro area, BlackRock Investment Institute analysis shows. Yet there are growing concerns that the U.S. recovery may lose steam without further fiscal stimulus. A softer-than-expected U.S. jobs report in September adds urgency to the need for further fiscal relief as the legislative window looks to be closing ahead of the election.

Rally drivers. One BlackRock portfolio manager noted that a smooth U.S. election would now come as a moderate surprise to U.S. equity markets – so, this could spur a year-end rally. Another opined that a year-end rally is plausible given that much of the negativity around Covid-19, the U.S. election, U.S.-China tensions and Brexit may already be in the price.

Could the election result itself spur markets higher? We believe simplistic narratives about the overall market direction are best avoided – and see the biggest election-related implications playing out within asset classes and sectors. For more insights on the sectoral and macro impact from the U.S. election, read our weekly commentary.

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