The volatility trend continues …
The markets today and viewed several hours before the opening bell look to open positive with most major indicators in the green.
Readers of these reports may recall that I have suggested that we are heading into a volatile Summer. We’ve had proof in the early morning hours: the major indicators flipped to green from red during the night. That continued yesterday afternoon’s downward trend which had followed the early morning surge. North American equity markets closed with most major indicators down except for the NASDAQ which managed to rise by 15 per cent.
Indicators to watch for today include the jobless claims reports scheduled for 8:30 a.m. EST and Kroger’s Q1 report, expected to show both increased sales as customers stocked up and increased expenses due to the crisis.
Did somebody say, ‘Sell in May and go away?’
Clearly that maxim has been put to rest at least for this Summer.
Nobody likes harsh realities in the early morning, but let’s consider several, including the continued spikes in the current pandemic, the possibility of a second wave, a questioning about how long the Federal Reserve Board can continue its bond-buying and the Eurozone’s flirtation with deflation. Every individual and every portfolio are different but each of these has some implications for some investments. It may be appropriate to consult your financial advisor about your exposure to them.
And if you go away for a Summer holiday, stay in touch with your investments!
In the meantime, one way of making sense of this tumult is to separate stocks into themes or groups, relative to their connection to the pandemic. One theme would be companies that show very limited signs of post-pandemic recovery and I will look at those in a future report.
Another theme would be companies clearly poised to do well in a post-pandemic world. Some of these companies can even be expected to at least hold their ground if a second virus wave of the virus actually crystallizes, as forecast in some quarters.
One such group would be cloud stocks according to Dan Ives, Equity Research Director at Wedbush Securities in New York. Ives argues that there is a massive shift among enterprises moving data and applications to the cloud, which has been exacerbated by COVID. “Microsoft, Amazon and Google are leading the charge with a $1 trillion of spending over the next decade expected,” he says. Ives believes that the prospects of a large remote workforce for the foreseeable future will be part of the fallout from the pandemic and that companies plying the cloud will benefit from that trend.
Even in a recessionary environment, cloud deployments will be a priority and many large projects have already been greenlighted, he says.
Every individual and every portfolio is different, but it might be appropriate to discuss this concept with your financial advisor.
(Looking at the current market tumult would produce other themes and groups of stocks and I’ll pick up on those in future reports.)
Related: How Long Can the Fed Continue Propping up the Market?