This year has been marked by heightened uncertainty, propelled by the global health crisis. While investors are motivated by the stock market's forward-looking outlook, their views have been fixated on the short term as their investments have been subject to adjusting to the new norm of volatility.

On a federal level, the monetary authorities have implemented a sweeping fiscal response to support the economy and restore market confidence. But while economic recovery is slowly pacing upward, there are still risks certain asset classes face, having skeptical investors turn to their financial advisors for strategic guidance on reallocating their investments and positioning their assets to an appropriate risk level.

As we brace for the end of 2020 and look to 2021, Liz Ann Sonders, senior vice president and chief investment strategist at Charles Schwab, recaps this year's leading market trends, fourth-quarter expectations and how advisors can prepare client portfolios for 2021.

What market trends can be expected in the fourth quarter of this year and into 2021?

Finishing out the third quarter, the stock market saw its largest declines since earlier in the year in March. The beginning of September proved to be a tease with the first two days of the month closing at all-time highs. But the end of the month was challenging for the major indices.

The S&P declined roughly 4% in September. While the tech-heavy Nasdaq reported strong third-quarter financials, it fell into correction territory due to elevated valuation, and the Dow stripped off 2.3% for the month.

"In advance of starting the fourth quarter, the major averages in the U.S. were hitting all-time highs on Sept. 2. You also had the volatility index rising and that's not normally the case. Normally, when major indexes are hitting all-time highs, volatility tends to be coming down," Sonders says.

Another market risk is election-related volatility. There are rising fears of a contested election.

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"The phenomenon that was in effect at that point was that the forward-month VIX was highly elevated because of election-related prospective volatility," Sonders explains.

"Now we're in the span of two weeks before the election and I think election-related volatility is likely to persist. In the aftermath of the election, particularly if it's contested in some form, it will keep volatility generally elevated."

Markets have been rising and falling as investors eagerly await additional fiscal stimulus. As negotiations continue between Democrats and the White House, market hopes keep thinning. Investors remain optimistic about a stimulus deal since it could help those who are unemployed, add some economic momentum and boost investor sentiment.

The tech sector has been a clear beneficiary of the pandemic. But are tech stocks overvalued?

The S&P 500 Information Technology Index is up more than 30% year to date, higher than its 10- year annualized returns.

As a consequence, however, stocks in the index have increased to market values higher than their earnings as investor enthusiasm for the sector grew. As a result, some are skeptical that these stocks are overvalued .

The stock market rally we've seen in recent months has been from the companies with the largest market capitalization in the S&P 500: Apple (ticker: AAPL ), Amazon ( AMZN ), Facebook ( FB ), Alphabet ( GOOGL ) and Microsoft ( MSFT ).

Sonders thinks the concentration of big tech could represent a market risk.

"The problem is, it's impossible to time when you may hit an inflection point. To some degree after the all-time highs of early September, we actually had a multiweek period where those big five names went into correction territory where they were down on average about 10% in an environment (and) the other 495 stocks did no worse than tread water," she explains.

"You could see some rotation out of those names and movement into areas that have been less hyped up," Sonders observes.

Travis Briggs, CEO and partner of Robo Global, also recognizes the advanced appreciation of tech valuations.

"It is apparent that retail investor activity has significantly increased this year via online brokerage accounts, including a substantial amount of speculation focused on the likes of Tesla and 'hot tech' IPOs, " he told U.S. News in an interview earlier this month.

"Many tech companies today present considerable valuation risk," he explains.

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Looking to the U.S. election, we could be seeing a Democratic sweep in the White House and Congress. How should advisors be setting up their clients for a potential blue wave?

A change in political leadership could have big impacts on global markets.

"Given the pandemic will likely alter how the results are received with an increase of mail-in ballots, we expect there will be some increased uncertainty around the outcome of the U.S. election," says Charlie Ripley, senior investment strategist for Allianz Investment Management.

A Democratic sweep could mean changes in certain policies, and investors are wondering how that could impact income tax rates, health care, environmental regulation and ultimately their investments.

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"The last time there was a contested election was in the year 2000. And equity markets sold off and credit spreads widened as a result. There can only be two scenarios: A divided government in which no single party controls both the legislative and the executive branches of government or a unified government where one party controls both branches of government," Ripley says.

Although advisors recommend staying the course with investments and your financial plan, investors' short-term fear is the presidential election. A survey by UBS of 900 investors and 500 business owners revealed that 62% are concerned about the impact of the presidential election and 64% are considering making portfolio changes ahead of the election.

When considering your long-term financial plan, Sonders says to focus on diversifying your investments. "This year, we're seeing the merits of diversification. Bonds on a total return basis have outperformed stocks this year."

"Often investors will do their rebalancing on a calendar basis. We think this may be an opportunity to let volatility drive when you rebalance, so that you are forcing yourself to trim into momentum and strength in certain areas, which helps investors stay in gear without having to time the market," she explains.

What can we expect from S&P 500 companies' corporate earnings?

Investors are now focusing on S&P 500 corporate earnings. Some companies have already reported earnings in line or above estimates but it's projected that the S&P will record year-over-year earnings growth in 2021.

When there is an increase in a company's earnings, that tends to be followed by an increase in its market value. If a company reports earnings lower than estimates, its price per share may turn flat or go in the opposite direction. In some cases, even if earnings are in line with expectations, the market may still not view that favorably.

"When trying to connect the dots between earnings data or economic data and what the stock market does, it is relative to expectations," Sonders says. "Whether the rate of change is picking up or the deterioration is losing steam, those tend to be powerful forces that drive the market."

But Sonders adds that the nature of this crisis is such that the compression in economic activity and earnings was so severe that we have to be mindful of the level as we come off the bottom.

"We had a 'strong' second-quarter earnings season as measured by the percentage of companies that beat earnings expectations, not because they were killing it. As analysts were setting expectations, they were doing so absent of any meaningful guidance from companies," Sonders explains.

A lack of guidance for earnings expectations usually means management doesn't want to misrepresent potential earnings and more importantly impact their price per share. This puts more onus on investors to do their research to understand how the company is set to perform.

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