Markets brace for contact

Market sentiment has quickly deteriorated ahead of contentious US election and surging Covid outbreak. Markets have been blissfully ignoring warning signs for much for the autumn, but no longer. In Europe, the new infections in Spain, France, Switzerland the Netherlands, and the UK significantly surpass the highs in the first wave. The resurgence of Covid cases has triggered fears of further European and then US lockdowns (factoring in the delay). The market is rightly worried that tighter restrictions will only delay the much needed economic recovery. With the US election next week, the so-called `fear index` has jumped sharply in recent sessions. In March, policymakers rushed in to provide support in terms of massive fiscal and monetary policy reducing the period of stock market weakness. Yet this time central banks have exhausted their firepower and the absence of a new stimulus program out of Washington D.C specifically is worrying (Europe continues to squabble over the spending of €750 billion recovery fund allocations). Unexpected tightening of key polls has shaken investors’ confidence of an orderly "blue wave". We know that none of these factors is new, but sometimes it takes the market a while to handle reality.