Market Preview: What to Expect in the Fourth Quarter
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What is the main topic discussed in this episode?
Here's your money briefing for Tuesday, September 29th. I'm J.R. Whalen for The Wall Street Journal. Following the stock market, this year has not been for the faint of heart.
What are the biggest near-term risks to U.S. stocks heading into Q4?
It's up nearly 50% since March, but plenty of sharp ups and downs along the way have kept investors concerned about their savings and their retirement accounts on edge.
We have a three-headed monster. We have an election year. We have a pandemic. And then we have a Fed that is doing things that no Fed has ever done.
So what can we expect on Wall Street in the fourth quarter? James McDonald, CEO of Hercules Investments, joins the show to take a look at what's coming up. That's after the break.
Since U.S. stocks bottomed out in March, they've recovered a big chunk of their losses. But looking ahead, there's still plenty that could give pause to anyone who owns stocks, from rising coronavirus infections to battles in Washington over more stimulus and a heated election. For a look at the risks that investors face in the upcoming fourth quarter, I'm joined by Hercules Investment CEO James McDonald. James, thanks for being here. So to start off, you know, markets have been trending upward, but instability has been a mainstay on Wall Street.
Will market volatility spike again before the election and why?
Do you expect more of the same?
True volatility will return imminently. We are expecting a big spike in volatility as seen in February and March when the virus first hit. We saw a glimpse of that volatility again on June 11th when we had a minor pullback in the markets. And then here, just in the beginning of September, we've seen the market correct in all three major indexes, the Dow, the S&P 500, and the Nasdaq. And we got a really quick spike in volatility, but it's come back down Volatility as a true asset class is underpriced here, and that's where we like to invest. Now, will the stock market provide fits and starts and surprises? Yes, but we think there's going to be a general downward trend starting probably late this week heading into the election, and then we will see a true spike in volatility.
Now, if investors want to put money into the market, what should their level of caution be?
Their caution level should be high. And this is a tricky time for us.
How cautious should investors be about buying tech leaders now?
We've seen this before. I've been doing this for almost 30 years. There are companies like Microsoft and Amazon and Google that are monsters in their space. But these companies, too, had to trade during severe economic conditions. And so if we go back to the 2001 dot com crash, was Microsoft a great company? Absolutely. Was it a great long term buy? Absolutely. But if you bought Microsoft just before that crash, you would have seen a big drop in the value of those shares. We're in that same position today where we see a new generation of incredible, incredible businesses that over the long term will dominate. But at this very moment, when we're at the potential beginning of a major market sell-off, we have to be very incremental and cautious as we enter these positions.
cloud computing. We like artificial intelligence. We like e-commerce still.
Which sectors does Hercules favor despite short-term risk (cloud, AI, e-commerce)?
And these spaces are going to continue to expand and they've actually been accelerated because of the pandemic.
You know, James, the Federal Reserve has been aggressive in lowering rates and trying to stabilize the economy. But do you see more ways the Fed can affect the markets?
Chairman Powell said there will be 36 months at least of no interest rate changes. And so that's one side of it, the monetary policy. The other side of it, the liquidity injections. I think the virus concept, if we get a vaccine, the Fed will be able to see light at the end of the tunnel. The Fed will be able to say, OK, this is going to go away. And so we're going to start pulling back on I'll just call it intervention in any form. And so we think that there will be a spike in volatility if. there is a vaccine. We think there will be a spike in volatility if there's not a vaccine, because if there's not a vaccine, then we continue to see these shutdowns.
How could Federal Reserve policy and liquidity affect markets this quarter?
And the Fed isn't going to go and provide every waitress and every used car dealer and every mall employee with a paycheck forever.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:14
2
What are the biggest near-term risks to U.S. stocks heading into Q4?
0:14–1:20
3
Will market volatility spike again before the election and why?
1:20–2:15
4
How cautious should investors be about buying tech leaders now?
2:15–3:10
5
Which sectors does Hercules favor despite short-term risk (cloud, AI, e-commerce)?
3:10–4:01
6
How could Federal Reserve policy and liquidity affect markets this quarter?
4:01–6:08
7
How might a vaccine or lack of one change Fed intervention and volatility?
6:08–7:40
8
What election-related outcomes could trigger market rotation or selling?
7:40–9:19
Speakers
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