In summary from a research note from UBS.
We expect markets to remain more volatile than normal, notably into the US election, but we still think that investors should use this volatility to position for the higher stock prices we expect over the medium term.
Three reasons for investing now:
1. Whatever the outcome of the US election, we think new stimulus will be rolled out after the vote and lift economic growth.
2. Successful vaccine trials will increase certainty about the economic outlook. News on COVID-19 vaccines and treatments has not all been positive.
But critical Phase 3 efficacy data for the most advanced vaccines in development is likely this month or next. We think that markets will start to price in the economic benefits of a vaccine as soon as positive results on its efficacy are published, as it will provide greater certainty that governments will not need to use lockdowns to manage the virus indefinitely.
3. Central bank policy is making the long-term case for equities over cash even clearer. The Fed projects that rates will remain on hold until at least the end of 2023. At the same time, the shift to average inflation targeting suggests policymakers may be willing to accept a period of moderately higher inflation. Real returns on cash are likely to remain negative
