The S&P 500 will tumble up to 20% before the inauguration as investors have lost hope that COVID-19 would be controlled, an investment chief says

• The S&P 500 will tumble up to 20% further before the inauguration as investors have now lost hope that the coronavirus would be controlled, James McDonald, Hercules Investments CEO, said on Wednesday.
• "We see stocks falling by another 10-20% from here," McDonald said. "If the S&P 500 breaks below 3,200 before the election, its next move may be down another 12% to 2,890."
• The benchmark index closed at 3,271 on Wednesday, its lowest level since late September.
• McDonald told investors that volatility is the only asset class with any clear upside potential at the moment.
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"The stock market is telling us that COVID-19 isn't going away anytime soon."

That's according to James McDonald, Hercules Investments CEO and investment chief, who said on Wednesday that the S&P 500 index could tumble an additional 20% before the presidential inauguration in January as cases of the coronavirus surge in the US and swaths of Europe begin to lock down again.

The benchmark index lost as much as 3.6% during Wednesday trading and closed at 3,271 — its lowest level since late September. McDonald said the market turmoil isn't over just yet.

"Expectations that COVID-19 would be under control by now have vanished and we see stocks falling by another 10-20% from here," McDonald said. "We believe that if the S&P 500 breaks below 3,200 before the election, its next move may be down another 12% to 2,890."

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The investment chief's trading strategy led him to profit from the market's volatility at the height of the crash in March. He has been long volatility since then, and told investors it's the only asset class with any clear upside potential at the moment.

"Even after today's 20% spike, we believe that volatility has more room to run between now and the election. We see volatility rising even further after the election, the longer we go without a clear result," said McDonald.

He added that "work-from-home" stocks like Zoom and Docusign are solid long-term investments, though the markets are currently displaying "extremely bearish signals" for stocks.

Read more: Market wizard Tom Baldwin started trading with $25,000 and grew it to an estimated $30 million. He shares 6 timeless trading rules that helped him reach millionaire status before his first year was through.