After five months of consecutive gains, the recovery in financial markets stalled in September. Initially profit taking in the technology sector led the market lower, but weakness spilled over across global risk markets as investors reflected on a list of growing concerns. The fiscal stimulus impasse in Washington, rising COVID-19 infection rates, loss of momentum in recent economic data and US elections all contributed to a more fragile market sentiment.

In the US, hopes of further fiscal stimulus before November’s election started to fade. Republicans and Democrats made progress towards agreeing the potential size of a package but remained deeply divided on Democrat demands for financial aid to state and local governments. It now seems unlikely that an agreement can be reached this close to the election, as each party tries to ensure that they “own” any deal, and attention is moved to the Supreme Court confirmation hearings for Amy Coney Barrett. The renewal of fiscal stimulus in the US and across the developed world looks set to be a key driver of market sentiment in the coming months.

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