Week Ending July 10th, 2020

It was not a good week for the bears as they were hoping for. Markets shrugged off all the negative news again. Stocks did dip on last Thursday  but recovered  On Friday.  NASDAQ hit a new record high, as technology is the only game left in town. Investors are buying Technology specially because they feel safe buying it and technology stocks have become the new ‘defensive’ sector for the economy. The characteristics of this pandemic shock which has caused recession are peculiar and have made the bulls to feel like technology will never go down; as people are working from homes and are busy playing with social and movie apps. Moreover Fed is pumping money into the system with stimulus checks to keep people binge watching and playing.

I think investors are buying technology because it looks relatively attractive as compared to other sectors. But If we base our analyses solely on finding the absolute value of this sector, then all the rosy stuff attached to technology sector flies away.

The emergence of new retail players is also responsible for some action. There are some new brokers posing as tech companies which are making the novices play the game everyday and buy whenever there is even a small dip intraday. 

The stock market reacts before even we start believing the positive news about the economy as seen in 2009. But this time, markets moved up pretty soon like a snap of fingers which causes doubt about the legs of the move up so far. Moreover the stimulus offered by Central banks was immense and very fast paced as it was delivered far more quickly than 2009. 

I would advise to stay invested in fundamentally sound companies with business models to prevail in the post covid world and don’t chase the high flying momentum stocks if you are a conservative investor.

Week Ending July 3rd, 2020

Happy 4th July to all. America is indeed the “land of the free and home of the brave” and a true democracy. I am sure that America will continue to lead the world forever. God Bless America!

Stocks posted solid gains last week due to improvement in the unemployment numbers, the consumer confidence data and better than expected factory data. The investors neglected the rising number of cases in the south and southwest of United States last week.

Last Thursday’s official payrolls report from Labor Department confirmed strong jobs momentum  showing a record 4.8 million gain in non farm payrolls in June 2020. The unemployment rate fell from 13.3% to 11.1%.

Although there is some good news which propelled the stocks up last week but deep in the general uptrend, the worries remain. Investors are concerned about US election outcome, Hong Kong situation, the coronavirus and de-globalization. Also the data from the Thursday’s jobs report was collected in mid June just before the resurgence of cases in south and southwest parts of US. Collection rate for the Establishment survey was 63% lower than pre covid level. The household survey response rate was 65%, 18% lower than pre covid period ,which also should be viewed before making any judgment based on the payroll numbers.

Recent rise in Corona virus cases have paused or reversed the reopening plans in many states so its effect will more likely be visible in the August report .

Investors are looking for earning season starting mid July. In my view the companies may give some kind of informal future guidance in their quarterly  reports. 

The Week Ending June 26th, 2020

Stocks tumbled on Wednesday after climbing on Monday & Tuesday as investors finally recognized the fear of surging new cases in the states. Also IMF warned that global economy will shrink by more than 4.9% in 2020 more than previous forecast of 3% contraction. Stocks indices recovered by 1.1% approximately on Thursday and fell again on Friday due to Fed’s stress test report of US banks and a record 40000 new cases recorded on Thursday.

It was a very choppy week for US equities. Finally markets started reacting to negative news like resurgence of cases, China US relations & election outcome. But I think the major factor affecting sentiments is Biden’s lead over Trump. Market is more worried about reversal of tax cuts also.

Markets are also reacting negatively to FED’s stress test of Banks. As obvious, the capital ratio of banks have come down from pre covid  levels. And Fed does not look confident about the capital ratios of all banks going forward. Fed is also considering a W shape recovery route apart from V or U shape. The W route is perhaps the long one and will test resilience of market to a great extent.

As the cases are surging across the many states, we are not seeing equivalent number of hospitalizations may be due to young population getting ill more than older population as suggested by administration. We hopefully won’t be seeing apocalyptic moments of stress as faced by NYC back in April, as medical world has learned a lot from the experience so far. Moreover there are some drugs now known to the world of medicine which help in treating patients .

I never thought that China was ever serious enough to sign a deal with America as , and now it seems China does not want any deal. Mr. Trump is also more busy thinking about election now and does not want his voter base to underestimate his negotiation skills till election. 

The Week Ending June 19th, 2020

On Monday US stocks spent the morning in red, but surged on positive news from the Federal Reserve. Fed announced that it will begin buying individual investment grade corporate bonds in addition to the ETFs starting June 16.

US stocks rallied on Tuesday due to fresh data showing retail sales rose 17.7% in May. Federal Reserve chairman said in a testimony presented to the Senate Banking Committee Tuesday that economy faces long term damage from high unemployment despite recent signs of improvement. He also shared that full recovery is unlikely until public is confident and the disease is contained.

On Wednesday Stocks swung between gains and losses for much of the day before declining towards the end of the day, as investors weighed a rise in infections in many states. On Thursday the stocks spent almost all the day in negative territory  before  pairing back the losses at the end as meeting between Mike Pompeo and his Chinese counterpart was said to be constructive. Also Labor department showed that the new jobless claims have eased as states allowed businesses to reopen in the last week.

Friday was a choppy day of trading as Dow rallied at opening bell and then swung 600 points, then staged a partial comeback in the last hour before closing. Stocks turned lower as Apple announced to close 11 stores in the area hit by new infections.

The swings in the stock market point towards the anxiety being felt by investors due to the new wave or spike of infections although we have seen some good numbers from labor department. The investors are trying to assess the damage of second wave on reopening plans of the businesses.

I am anticipating a fall in stocks before or around the US election, and I feel that market just needs a major shock to shake off the positive market sentiment which is built around assumption of quick V shape recovery. Most of the sophisticated investors are staying invested while putting in extra safety guards in the event of any sudden shock.

Investors should look into buying value stocks which are looking very cheap from historical perspective and let the crowd of new traders chase growth stocks.