From here, we expect the economy to grind unevenly higher, as it hits rocky ground when infection rates surge. Unprecedented policy actions have supported the economy and boosted risk asset prices, but have not triggered a self-reinforcing expansion. Solid growth will probably require successful and widespread vaccines and medical treatment.

Despite the slowing recovery, equity and credit markets have held up surprisingly well. We believe investors are pinning their hopes on vaccine availability that will allow economic reopening to continue. The downside is that this makes markets vulnerable to disappointments.

At present, the equity bull run seems to have reached a consolidation phase. With relatively high valuations, earnings will increasingly drive future price changes. We expect stock markets to remain under pressure and volatility to continue for the time being. However, equities are more likely to experience a sustained uptrend with more clarity around medical breakthroughs and the postelection environment.

Five Election-Related Observations
1. Federal spending would likely rise under a Biden presidency. In particular, pending infrastructure and environmental initiatives would require higher taxes.

2. Biden’s tax plans are designed to raise $4 trillion over the coming decade, chiefly from an increase in corporate tax rates, removing the cap on Social Security taxes and converting capital gains and dividend taxes to ordinary income for wealthier Americans.

3. Federal spending would also likely rise under a second Trump term. As such, regardless of the outcome, we think a recession in 2021 looks unlikely.

4. Regardless of the outcome, Federal Reserve Chair Jerome Powell is determined to keep interest rates at zero for a long time.

5. We envision relative stock market winners and losers in different scenarios. Under a blue wave, alternative energy companies such as wind and solar and infrastructure-related companies should benefit. In contrast, airlines, aerospace and most health care companies (especially pharmaceuticals) would benefit should Trump retain the presidency.

Robert C. Doll is senior portfolio manager and chief equity strategist at Nuveen.

All market data from Bloomberg, Morningstar and FactSet
Earnings data from Credit Suisse Research

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