Coronavirus stimulus and a Europe lockdown equals Dow 30,000: strategist

·Executive Editor

Updated Mon, Nov 2, 2020, 8:06 PM4 min read

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You have to give folks on Wall Street credit — they are a very focused bunch that often stick to their guns for a while before reversing course on a market or individual stock call.

And that stick-to-your-guns posture is where we find a lot of strategists in the lead-up to a wildly uncertain presidential election outcome. Right now, the guns they are sticking to are that the equity bull market will emerge from Election Day intact no matter who wins the White House. Heritage Capital founder Paul Schatz is among the litany of bulls, predicting a Dow 30,000 is not too far off in the distance (12% away from its current level).

Schatz’s call is underpinned by a potential “blue wave” (led by a Joe Biden presidential election win) driving $2 trillion to $3 trillion in fresh fiscal stimulus, a locked down Europe due to COVID-19 sending foreign money into U.S. markets, and any Biden tax hikes being pushed out into the future. As icing on the cake, Schatz thinks, easy money from the Federal Reserve will continue to support asset prices.

“A lot of people are going to get stuck scratching their head with tons of cash because they can’t figure out why the stock market continues to go up in the face of all these headwinds,” Schatz said on Yahoo Finance Live.

The wildcard for these bullish predictions at this juncture isn’t necessarily the election, it’s the pandemic. After all, we are going to get an election outcome one way or another and government will go on. The pandemic is now picking back up in intensity in Europe and the U.S., leading to fresh economically painful mobility restrictions. It’s unclear when a vaccine may be approved and begin flowing into the arms of humans worldwide.

The rising levels of angst on the Street over the pandemic came to a head in the final week of October.

The S&P 500 sold off to the tune of 5.6%, marking the worst one-week performance ever ahead of a presidential election. Tech stocks such as Apple, Amazon and Facebook — often hideouts for the bulls in volatile times — got beat up. And Wall Street’s fear gauge, the CBOE Volatility Index — better known as the VIX — spiked back above 40.

ANKARA, TURKEY - OCTOBER 27: Injection syringe of the phase 3 vaccine trial, developed against the novel coronavirus (COVID-19) pandemic by the U.S. Pfizer and German BioNTech company, are seen at the Ankara University Ibni Sina Hospital in Ankara, Turkey on October 27, 2020. This vaccine candidate, within the scope of phase 3 studies, was injected to volunteers in Ankara University Ibni Sina Hospital. (Photo by Dogukan Keskinkilic/Anadolu Agency via Getty Images)

But holding true to form, Wall Street has a bullish take on the raging pandemic as well — which partially explains the consistent bull market calls.

“We believe the recovery is intact, and think Phase 3 vaccine data in November could be a catalyst for the market to discount a reopening in 2021,” wrote Morgan Stanley strategist Adam Virgadamo in a recent note to clients. Virgadamo points to research out of Morgan Stanley’s biotech team that calls for positive efficacy data from three leading vaccine candidates as the prime reason for his upbeat stance.

There are 11 COVID-19 vaccines currently in Phase 3 trials around the world, according to New York Times data. Moderna and Pfizer are generally viewed as being among the U.S. companies furthest along in developing a COVID-19 vaccine.

“I think regardless of the outcome of the election, the business cycle recovery almost surely will continue and the bull market in equities that has been under way since late March almost surely will continue,” MKM Partners chief economist and market strategist Michael Darda said on Yahoo Finance Live.

Clearly, Darda isn’t alone on the Street.