The 8 risks to the market between now and the end of the year to watch out for, according to JP Morgan
The markets They have faced many challenges so far in 2020 that have pushed investors to the limit. The coronavirus pandemic It has been, perhaps, the most complicated of all, and can still leave its mark between now and the end of the year. The problem is that there are other open fronts that threaten markets in general, and stocks in particular. Risks that should be kept in mind and that must be watched, as explained JP Morgan in your latest strategy report.
And not because they are necessarily events that will occur, that is not the 'base case' of the experts of the US bank, but because there is a high "potential" that they could materialize. They are as follows:
1. Renewed Increase in Business Uncertainty. The US-China dispute is far from over, and when it seemed that everything was on track, with the agreement between the two powers well advanced, the tension resurfaces. To the American President, Donald trump, He is interested in rescuing this issue in the face of the elections next November, especially to diffuse criticism for his management of the Covid-19 crisis. As JP Morgan explains, polls in the US suggest that unfavorable views on China have become firmly bipartisan, thus Trump and the Democratic candidate, Joe biden, "They could do their best to show their strength against China in the upcoming discussions."
2. Vaccine delay. The coronavirus is still very present in the day-to-day life of investors, and now all eyes are on the possible Covid-19 vaccine. Markets move to the beat of the news, and it is possible that a delay in the dates could undermine the performance of stocks, bonds and commodities. "In particular, given the omnipresent expectation that it will be implemented in the October / November deadline," says JP Morgan.
3. Problems with the result of the presidential elections in the USA. The appointment at the polls on November 3 is already a risk in itself, but the bank's analysts warn of what could happen if there were problems like those that occurred in the 2000 elections in Florida. That year George W. Bush achieved the presidency with controversy, given the scandal that was unleashed in that decisive state. The votes had to be counted, including controversy, since a month later the result was still so tight that there was no decision on which of the two candidates, whether Bush or his opponent, the Democrat Al Gore, was the winner. In the end, the Supreme Court intervened and declared the Republican the new tenant of the White House. If something like this happens again, not a crazy possibility considering the tightness of the polls, "it could lead to a legislative paralysis for a time, exactly when fiscal support packages are crucial to supporting the economy, "says JP Morgan.
4. Possible softening of fundamentals. As the bank says, this will happen "if the improvement in the labor market stagnates and the renewed rebound of the virus affects the pace of economic normalization, since consumer confidence is at a minimum." He also sees other risks to activity, such as "fiscal crash", "risk of policy execution" and "too premature end of support", or that the momentum of the PMI not only reaches its peak, but that " re-enter contraction territory once pent-up demand is exhausted. "
5. Challenge to market techniques. Another risk that JP Morgan mentions is that there is a "high risk of concentration" of investments, because "some indicators of investor sentiment are showing complacency". He explains that the positioning is not adequate, because there are "short interest and minimum selling ratios", which suggests that "the techniques remain unfavorable, even after the recent softening of the market."
6. Risk of a peak of credit defaults. The US entity believes that the current crisis may cause a brutal increase in bad debts that ends up affecting the market. In fact, he assures that it has already begun to be noticed in residential and corporate loans, where delinquencies "have increased considerably."
7. Dollar, oil and inflation. According to JP Morgan, other risks that will have to be watched, due to their possible impact on the markets, are the possible strengthening of the dollar, falls in the oil price, and if the inflation rates go down again.
8. Geopolitical risks in the world. Also, between now and the end of the year there are other problems that can convulse the markets. The most important, perhaps, is the Brexit, which is on everyone's lips again. The United Kingdom will definitely leave the EU on December 31, and for now the trade agreement with the Twenty-seven seems far away. In fact, the uncertainty has increased to such an extent that the chances of a messy divorce have increased dramatically. Investors are also very concerned about everything related to Russia or Iran, who will continue to monitor developments.