COVID-19: Volatility to persist as recovery fatigue kicks in

Stocks and most other asset classes across the world witnessed a highly volatile week posting heavy losses for investors.

The market’s turbulent run this month comes as investors worry about the upcoming US election, the sustainability of the economic recovery and the prospects for US Congress to deliver more economic stimulus and the uncertainty over how soon drug makers will be able to develop a COVID-19 vaccine.

Seesawing sentiment

The market’s momentum has shifted with lightning speed recently, often changing direction by the hour. On the Wall Street stocks seesawed back and forth last week before closing slightly higher on Thursday on the hope of a fresh stimulus.

Wall Street’s worries were amplified by disappointing employment data and a series of warnings from the US Federal Reserve. Federal Chair Jerome Powell reiterated that the US economy still had a long way to go before recovery weighed on sentiment.

Fading hopes

Although markets came under pressure during the week, it was bolstered by some faint positive signals. US Treasury Secretary Steven Mnuchin on Thursday urged the Congress to pass a new stimulus package while Democrats are apparently finalising a $2.50 trillion fiscal package. Analysts expect a headline number like that is sure to be dead on arrival.

With a US election just over a month away, and the political focus shifting to Supreme Court appointment ahead of it, the chances of both sides reaching an acceptable fiscal compromise recede by the day.

Last week 870,000 workers filed for unemployment claims, the first real indication that the effects of the previous package are running out of steam.

Global worries

In Europe and Asia, the investor worries in general are around the same themes and most are looking for direction from the Wall Street, the Fed and the US Congress. In Europe, new COVID-19-related restrictions in the UK, France and Spain are also weighing on market sentiment.

Chasing Wall Street’s tail, Asian stocks showed modest gains on Friday after a losing streak last week. Indian shares fell sharply on Thursday extending the losses in six previous session amid fears of unabated spike in coronavirus.

With the prospect of the global economic growth running out of steam looking increasingly real and doubts over the US government’s ability to pull off another stimulus package pulling down sentiment, markets across the world could be in for more torrid whipsaw sessions and bloodbaths in the weeks and months ahead.