'Rising case activity is now dragging down market sentiment': Global Market Strategist

Jack Manley, J.P. Morgan Asset Management's Global Market Strategist, joins The Final Round to discuss his outlook for markets as election season continues and if market volatility will continue.

Video Transcript

SEANA SMITH: All three of the major averages pretty solidly in the red with the Dow off just around 385 points. The NASDAQ on track for its longest losing streak since August of 2019. So for more on this, we want to bring in Jack Manley. He's a global market strategist at JP Morgan Asset Management. And, Jack, great to have you back on the program.

Let's just start with today's sell-off, the selling action that we are seeing heading into the close. What do you make of it? And how much and the recent action do you think has been driven by the stimulus talks?

JACK MANLEY: So I think there are two competing forces in markets right now. I think on one hand, you have this sort of indisputable reality that caseload activity is picking up in the United States. It's picking up around the world. On the other hand, I think you had some really frenzied excitement about the prospects of a second stimulus bill getting pushed through. We had that meeting this afternoon between Nancy Pelosi and Secretary Mnuchin. Some, I think, anticipation that we may see more spending before the election.

Now it seems that that deal, those negotiations have sort of fizzled out, which, frankly, I think was anticipated if anyone would be paying attention to the way these negotiations were working over the last several weeks or even months. Now I think that that former anchor, that rising case activities is now dragging down market sentiment. I think it has investors anxious about the trajectory of the recovery, especially if additional stimulus within the next few weeks is becoming increasingly unlikely.

SEANA SMITH: And Jack, it's interesting, just in terms of the recent action that we've gotten, and especially when you look at the S&P, we've seen this long-term resistance level of 35, 50. We haven't been able to really break above that recently. Does that give you pause at all? Because I know that there's some commentary out there just in terms of the fact that we haven't been able to break above that level so it could signal a bigger sell-off ahead.

JACK MANLEY: I would rather say that I think there's that level that's psychological out there in markets, because there are a couple of very profound unknowns that we are grappling with. I think one of them is the election outcome, which is going to be resolved in a couple of weeks. I think the other much larger, much important one is the vaccine timeline.

You know, we have this light at the end of the tunnel. We know eventually that the pandemic is going to be over. But we don't really know exactly when. I mean, we're all hoping it's going to be in the first quarter of next year. It could be longer. And, frankly, I think important to remind everyone that even once we do get a vaccine, it is going to take months to fully inoculate the American population, let alone inoculate the entire world.

So you have these two big hurdles. I think markets may be in a little bit of a holding pattern waiting until at least figuring out what's going to happen with the election, then moving on to that bigger, I think more important, ticket item of the vaccine and the end of the virus with that subsequent recovery. So that's how I kind of apply this all out.

DAN ROBERTS: Jack, Dan Roberts here. Yeah, I appreciate what you say about the vaccine and the recovery. And the pandemic is sort of the obvious much larger, more long-term overhang. And so much uncertainty with that and, yet, in the short term, it's interesting watching the narratives change about the election and the effect there. I mean, you were just saying it as an aside, but you said, oh, that'll be resolved in a couple weeks.

Well, and yet, you know, the consensus has become that maybe there will be a whole week or even longer after election day where it's not resolved. And, yet, what we've heard from people rolling into our live shows is, well, that's baked into the market. And the market now expects the unexpected, expects either a contested election, expects some uncertainty there.

It's still kind of hard to believe that in the days after election day, if there isn't anything definitive, that there wouldn't be turmoil for stocks. Talk to us a little bit about that, what we might see from the election before we then move on and we return to thinking about the pandemic and the vaccine timeline.

JACK MANLEY: Dan, I wouldn't disagree with anything that you just said. I think that election years are always going to be volatile. I think this year in particular is going to be especially volatile just because of how contentious the election is, how divided the American population is when it comes to political leanings. And now I think we have this added complication of a pandemic, meaning that we are mailing in ballots in a way that we really just never have in history, which, of course, complicates even further the election process. It means that we may not know exactly who is president on November 4.

But Dan, I mean, you said it yourself. You know, if we are in limbo, I think we're going to be in limbo for a few days, kind of like what we saw back in 2000 with the recount issue down in Florida. This is not going to be an issue that we're going to have to deal with for months and months and months. Maybe the timetable is extended a little bit. I think markets, as you mentioned, are fully pricing that in. I wouldn't be surprised at all if we see some extraordinary volatility, especially around election day and the days following that.

But what we have learned time and time again is that markets, more than anything, like certainty and they like clarity. It doesn't really matter what the outcome is I don't think. Markets just want to know what to prepare for the next four years.

And whether we find that out in two weeks or we find that out in three weeks, I think there is a very clear light at the end of the tunnel from a political perspective that means that as soon as we know who's president, markets can start pricing in how policy implications will impact broader earnings, tax rates, those sorts of things. And then I think we're sort of back off to the races again.

- And Jack, you just mentioned tax rates. And a couple of months ago, a Biden win was seen as a potential hike for taxes. But in his first year of presidency, if Biden does win, would he be really focusing on taxes given everything else that's going on? Are investors more focused on a stimulus coming if there is a Biden win or whoever wins this next election?

JACK MANLEY: Yeah, I mean, I think there are a few things to say there. I think the first one, as you alluded to, is that I think regardless of who wins the presidency in November, we will see more stimulus. Although it is going to be much-- very, very much dependent on the one-party sweep, I think all red or all blue.

We know this is a bipartisan issue. We just know that traditional kind of gridlock in Washington is preventing it from coming through. So I do think we're seeing more stimulus regardless of who gets elected in November.

And I think that you're right. I mean, I think that markets are assuming that Joe Biden would not raise taxes in January of 2021. The recovery from an economic perspective, from profits perspective, it is going to be still very fragile at that state. I don't think we would expect any sort of politician to try to derail or disrupt that story.

So even if we do get higher taxes, I do think they are phased in gradually. They're phased in over time. We saw this happen during the Obama administration. We've seen it happen during the Clinton administration before him. You know, promises of higher taxes that eventually come to fruition, but don't get smacked down on us the first day that these people come into office.

SEANA SMITH: All right, Jack Manley, always great to have you on the show, Global Market Strategist at JP Morgan Asset Management. We'll talk to you soon.

JACK MANLEY: Thanks