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Recent financial market returns point to investors shifting cash to safe havens and growing more concerned about a slowing economic recovery, Jason Draho, head of asset allocation in the Americas for UBS, said Monday. After the September tech-stock correction ended, investors lifted long-dated Treasurys, the US dollar, and large-cap growth stocks. Cyclical assets including gold, small-caps, and high-yield bonds sank. The shifts "are consistent with investors seeking (relatively) safe assets as concerns rise about moderating growth and inflation disappointment," Draho said. Market participants can expect high growth uncertainty to "delay a sustained rotation towards more economically-sensitive assets," Draho added. Visit the Business Insider homepage for more stories.
September brought heightened stock market volatility and a mass rotation out of tech giants, but the most recent week of returns signals a new concern gripping investors. Returns across the stock, bond, currency, and commodity markets point to increasing risks to economic growth and inflation, Jason Draho, head of asset allocation in the Americas at UBS, said in a Monday note. Last week saw investors pivot back to long-dated Treasurys, the US dollar, and large-cap growth stocks. More cyclical assets such as small-cap stocks, emerging market equities, gold, and high-yield bonds all tumbled over the period. Inflation expectations fell and 10-year real rates climbed slightly, reflecting a more bearish outlook toward price growth. The returns data can easily drive "spurious conclusions," but the shifts "are consistent with investors seeking (relatively) safe assets as concerns rise about moderating growth and inflation disappointment," Draho wrote. Read more: BANK OF AMERICA: Buy these 11 stocks to profit as e-commerce and robotics revolutionize their businesses and keep them growing faster than peers Those investors aren't without cause for concern. While some facets of the economy have roared back to their pre-pandemic highs, others remain mired in the coronavirus pandemic's fallout and have slowed their pace of recovery. New US jobless claims unexpectedly climbed to 870,000 filings for the week ended September 19, missing the economist estimate of 840,000 claims. Nonfarm payrolls data slated for release on Friday is expected to show the unemployment rate fall through September, but by a much smaller amount than in months prior. Gauges of consumer spending also point to a stagnating rebound. Retail sales climbed by just 0.6% in August, missing the consensus estimate of 1% growth and halving from July's 1.2% uptick. Investors' moves to safe havens are even more justified when looking ahead, Draho said. Hopes for new stimulus ahead of the November US presidential election are all but entirely dashed, with both parties' proposals still far from meeting in the middle. Rising COVID case counts in Europe recently renewed concerns of partial economic lockdowns, and cases are steadily rising in the US as well. Lastly, the Federal Reserve's latest policy meeting left some wanting greater detail around the central bank's forward guidance. In all, concerns of slowing economic growth "are likely to linger for at least a couple of months," Draho said. The upcoming election is set to push volatility higher, and uncertainties around the rollout of a coronavirus vaccine will keep some from returning to financial markets. Risk appetites could improve in early 2021 if Congress passes new stimulus and a vaccine wins regulatory approval, but investors shouldn't get their hopes up for a near-term reversal from last week, Draho said. "For now, expect structurally high growth uncertainty to keep volatility elevated and delay a sustained rotation towards more economically-sensitive assets," he added. Now read more markets coverage from Markets Insider and Business Insider: Fed's new inflation strategy will lift profits and reduce risks for stock investors, Goldman Sachs says Inovio tanks 39% after pausing coronavirus vaccine trial, trading halted 'We are going to see some big shifts in the coming 3-6 months': Investing pioneer Rob Arnott sounds the alarm on the market's greatest bubbles, including the big-tech boom — and tells us where he is finding bargains nowJoin the conversation about this story » NOW WATCH: Why NASA won't send humans to Venus
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Summary List Placement A Democratic sweep in November would place stocks on a rollercoaster ride through...Summary List Placement A Democratic sweep in November would place stocks on a rollercoaster ride through the end of the year, Morgan Stanley strategists said Friday. US equities are among the few assets poised for a "detour" should a so-called blue wave take place. The market's steady climb would reverse temporarily before correcting in 2021, the analysts said. Stocks would initially dip on fears of higher corporate taxes and uncertainty around future stimulus, according to the bank. Once the party can clarify its fiscal relief plans, a follow-up to March's CARES Act and continued economic recovery can place stocks back on their upward path, the strategists added. Visit the Business Insider homepage for more stories. A "Blue Wave" come Election Day can boost stocks, but only after bouts of strong volatility and a knee-jerk decline, Morgan Stanley strategists said Friday. Current polls suggest Democratic presidential nominee Joe Biden will beat President Donald Trump in November, and that the Democratic Party holds a strong chance of securing control of Congress. Yet US equities are among the few assets poised for a "detour" should such a sweep take place, the bank said in a note to clients. While some assets such as Treasurys and oil would face a steady decline, an overwhelming Democratic victory would form a temporary deviation from stocks' upward trajectory, they added. The market's immediate reaction will likely be negative, according to the firm. Fears of tax hikes will drive initial selling and lower earnings outlooks. Read more: 'The largest financial crisis in history': A 47-year market vet says the COVID-19 crash was merely a 'fake-out sell-off' — and warns of an 80% stock plunge fraught with bank failures and bankruptcies The continued economic recovery would drive some derating of earnings-per-share multiples, posing a short-term risk until profit growth catches up with the updated forecasts. Uncertainty around future stimulus can also cloud initial hopes for fresh relief, the bank said. "We expect fiscal expansion to provide some offset [to higher taxes], but until the market knows the type of fiscal expansion after a Democratic sweep, expect that equity risk premium could remain elevated into January," the team of strategists wrote. Read more: Goldman Sachs says to buy these 21 stocks poised to deliver the strongest sales growth through year-end Still, stocks should resume their climb once volatility dies down and investors get a clearer look at the Biden administration's legislative agenda, according to Morgan Stanley. The continuation of economic recovery will revive spending and drive earnings growth. A follow-up to the March CARES Act will lift bullishness, and Morgan Stanley expects the tax scare to give way to a smaller-than-expected increase. "Our base case is to buy any dip on a blue wave as we think tax policy is difficult to enact and think the legislative focus will lean toward CARES 2 as a top priority," the team said. As for other outcomes, the bank views a divided government as having less of an up-front slump but a longer struggle with passing new stimulus. The nation's economic rebound could stall and slam investors' bullish forecasts, the strategists added. Now read more markets coverage from Markets Insider and Business Insider: Jerome Myers left corporate America to start real-estate investing and amassed a portfolio with over 90 units. He shares the 4-part strategy he's using to chip away at his 1,000-unit goal. Shaquille O'Neal, former Disney executives, and Martin Luther King Jr.'s son target $250 million SPAC launch Xilinx soars 17% on report rival AMD is in talks to buy it for $30 billionJoin the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
The stock market has been on a tear for much of 2020, but there is now...The stock market has been on a tear for much of 2020, but there is now more volatility as investors worry about the outcome of the presidential vote.
Summary List Placement The upcoming US presidential election could be one of the most uncertain elections...Summary List Placement The upcoming US presidential election could be one of the most uncertain elections in the nation's recent history, making current investing decisions difficult. UBS says that a contested outcome is possible, and investors should head into safe assets right now. Here's what four market experts are saying about how to invest heading into the election. Visit Business Insider's homepage for more stories. 1. UBS: Expect a contested election, buy safe assets. In a note published Monday, UBS said that the outcome of the election is far from certain, and investors should head into safe assets like gold. "A contested outcome is still a possibility, which could add to further volatility and result in safe-haven flows, though more into gold, the Swiss franc, and the Japanese yen than into the US dollar, in our view." Investors should use the current drop in gold prices to add exposure to the precious metal, Mark Haefele, chief investment officer of UBS Global Wealth Management, said. 2. Goldman Sachs: Seek opportunities in healthcare options trades. "Stocks exposed to tax reform and the health care sector appear to be most clearly demonstrating their sensitivity to the election outcome," a team of Goldman Sachs strategists wrote in a Tuesday note. "Our options strategists pointed to the opportunity they see in health care call options given the sector's unusual implied volatility discount and depressed valuations."Read more: UBS says the chances of a Democratic sweep have risen to 50% as Trump and Biden square off in their first debate. These 9 assets will help investors profit if a blue wave comes crashing in. 3. JPMorgan: Go underweight US stocks. John Normund, JPMorgan head of cross-asset fundamental strategy, suggested investors be underweight in US assets, like domestic stocks. "If your baseline assumption is that there's going to be a contested election ... recognize that this is a US-specific event and therefore that argues for underweighting US assets versus other assets," he said in an interview with Bloomberg on Tuesday. 4. Morgan Stanley: Skew your portfolio based on the outcome. Mike Wilson, chief investment strategist at Morgan Stanley, told CNBC on Tuesday that the stock market will go up no matter which candidate wins the election. But investors should be ready to skew their portfolios depending on who wins the election. In a Democratic sweep, sectors like financials and energy may fare poorly because of increased regulation. Technology stocks may still perform well in a blue wave, though, because Wilson said Democrats "won't be as tough" on tech regulation. Join the conversation about this story » NOW WATCH: Here's what it's like to travel during the coronavirus outbreak