Two COVID-related fronts weighed on investors' optimism and the stock market today.

One was stimulus, where there was little to report Wednesday other than more talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin, but no further progress.

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"The market's biggest worry is Washington as it relates to uncertainty surrounding fiscal stimulus," says Roderick von Lipsey, managing director, UBS Private Wealth Management. "With the political tug-of-war over a stimulus package, the markets are waiting to see how much and when."

The other was COVID-19 itself, which is triggering worries of a resurgence in the U.S. Among the troubling metrics: Johns Hopkins University data for last week show more than 30 states reporting an increase in weekly new cases, and positivity rates on COVID tests are at double-digits in more than a dozen states.

The earnings calendar wasn't much help, either: Bank of America (BAC, -5.3%) and Wells Fargo (WFC, -6.0%) both sank on weaker-than-expected third-quarter profits, though analysts were a little more upbeat about BofA.

"The quarter included some recurring themes from 2Q, such as interest margin contraction (as lower rates take hold), but also a lower credit loss provision as reserves for projected delinquencies have already been built in," writes Argus Research's Stephen Biggar. "We believe that the current BAC share price undervalues the franchise, and are maintaining our target price of $30. Our target implies a multiple of 13.9-times our EPS estimate for 2021, when we believe an earnings recovery will be underway."

The Dow Jones Industrial Average, which started the day with small gains, finished with a modest 0.6% decline to 28,514.

Other action in the stock market today:

  • The S&P 500 declined 0.7% to 3,488.
  • The Nasdaq Composite lost 0.8% to 11,768.
  • The small-cap Russell 2000 dropped 0.9% to 1,621.

Hope for a Perfect-Case Scenario, But Don't Plan For It

The markets still sit within reaching distance of all-time highs, but Brad McMillan, chief investment officer for Commonwealth Financial Network, provides a note of caution.

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"Markets are now hoping for (and trading on) a smooth election, a big stimulus, the end of the pandemic, and the economy being back to 2019 normal early next year," he says, adding that this scenario would support current prices and possibly even further price appreciation.

However, "right now, it seems like some of the good news might not happen. The pandemic news continues to deteriorate. The virus is still under control in many states, but it is not in control in many more. While the economy continues to recover, more damage is pending as multiple industries are now facing deadlines to downsize and as more and more people exhaust their savings and earlier stimulus payments. And while the vaccine and treatment news is good, we still don't have anything approved, and obstacles continue to appear."

It's hardly a call to dive into cash. But investors should consider a little prudent risk management ... and opportunity planning.

Comb your portfolio for profit-taking opportunities; these 9 stocks with bearish outlooks are an apt place to start. You could also add "portfolio stabilizers" via these 12 low-volatility stocks, which have traded far more calmly than the market over the past few years.

And why not start researching potential dip buys? These 25 dividend stocks yielding 3% or better, for instance, boast some of the most crowded bull camps on Wall Street – and could present even better value (and yield) if volatility deals the market another temporary setback.

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All contents copyright 2020 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC

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