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Twenty-two million have filed for unemployment in the past month, the SBA fund (Paycheck Protection Program) has run dry, the coronavirus global case count tops 2 million, and it will likely be months before the economy is able to open up safely. So, is the S&P 500’s 28% recovery, recouping 50% of its losses, a justified movement?
I think not. I believe it is time to be patient and hold on to your cash. Do not chase this rally.
The recent equity surge is being driven by a few things right now:
The backstop that the government has handed the markets with the $2 trillion CARES act and the Fed’s unprecedented “unlimited QE” initiative.
Analysts are discounting the already anticipated horrendous 2020 earnings as well as adverse economic data and looking towards 2021 where an enormous amount of growth is expected.
An ostensible peak in daily new case rate has given people optimism about when the economy will start opening-up.
We still have a long way to go before the economy is back to normal, and it will be a new normal. Testing on a massive scale is going to be crucial to getting the economy up and running again - testing for the virus as well as testing for antibodies, which would deem someone safe from contracting it.
Currently, less than 1% of the population has been tested for the novel coronavirus, but antibody testing is beginning to ramp up. Abbott Labs is saying that they could administer 20 million of these tests by June. This would still only represent about 6% of the US, and now the media is saying that the FDA is letting ineffective testing kits on to the market.
Why This Rally Can’t Continue
Our economy is not even close to being equipped to open back up again, and if we do it too early, we risk this whole cycle occurring all over again, which could send our country into an economic depression.
Even when we do open up, business will operate differently. Restaurants will have to space out tables and limit the number of patrons. People are still going to be scared to fly and travel abroad. This virus is conditioning consumers, and our consumption behavior will shift as a result.
I believe that the Fed’s unprecedented monetary support has given the markets a backstop, but I do not think that the stock market is accurately reflecting our current economic outlook. It’s going to take more than a year for a vaccine to be widely distributed and probably longer than that for our economy to fully recover.
The markets 12-month forward P/E today is higher than it was at the end of January - where the markets were quite richly valued. Granted, EPS estimates for 2020 are all over the board depending on how optimistic/pessimistic the analyst is, but we know they are going to be bad.
I don’t think that we are likely to test the March 23rd lows because of the Fed’s support, but I see a dip-buying opportunity coming soon.
What I Am Doing
I plan on capitalizing on the likely next leg down. Selling covered call options on your favorite equities is what I see as the safest and probably smartest investment move in this trading environment.
I personally have been loading up on SPY puts with expiration ranging from May 15th to June 19th, to hedge the rest of my equity portfolio. The volatility premium that had these options so expensive is beginning to fall as the market calms and puts are starting to trade at reasonable prices again.
My strategy is to hold puts until the S&P 500 hits the 2650, where I will (hopefully) pull profits from my options and start buying equities. As a disclosure, options are extremely risky financial instruments, and I would not recommend you purchase/write any option contracts unless you understand the risks involved.
On the pullback, I am looking to buy high-quality blue-chip tech stocks with healthy balance sheets and robust outlooks. Tech is what is getting us through this pandemic and it is what will thrive in the post-pandemic economy.
My Shopping List:
Microsoft, Alibaba, Adobe and Nvidia.
Take Away
I am confident that we will be able to purchase them at a discount to what they are trading today. Don’t chase the rally. Patience is the key to navigating these uncertain markets. The equity markets are going to be choppy for the foreseeable future, and the best strategy you can have is averaging down on red days and hold cash on green days. We are back to the good old buy the dip mentality.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: SPY, Microsoft, Alibaba, Adobe and Nvidia
For Immediate Release
Chicago, IL – April 17, 2020 – Today, Zacks Investment Ideas feature highlights Features: SPY (SPY - Free Report) , Microsoft (MSFT - Free Report) , Alibaba (BABA - Free Report) , Adobe (ADBE - Free Report) and Nvidia (NVDA - Free Report) .
How to Navigate the Choppy Markets
Twenty-two million have filed for unemployment in the past month, the SBA fund (Paycheck Protection Program) has run dry, the coronavirus global case count tops 2 million, and it will likely be months before the economy is able to open up safely. So, is the S&P 500’s 28% recovery, recouping 50% of its losses, a justified movement?
I think not. I believe it is time to be patient and hold on to your cash. Do not chase this rally.
The recent equity surge is being driven by a few things right now:
We still have a long way to go before the economy is back to normal, and it will be a new normal. Testing on a massive scale is going to be crucial to getting the economy up and running again - testing for the virus as well as testing for antibodies, which would deem someone safe from contracting it.
Currently, less than 1% of the population has been tested for the novel coronavirus, but antibody testing is beginning to ramp up. Abbott Labs is saying that they could administer 20 million of these tests by June. This would still only represent about 6% of the US, and now the media is saying that the FDA is letting ineffective testing kits on to the market.
Why This Rally Can’t Continue
Our economy is not even close to being equipped to open back up again, and if we do it too early, we risk this whole cycle occurring all over again, which could send our country into an economic depression.
Even when we do open up, business will operate differently. Restaurants will have to space out tables and limit the number of patrons. People are still going to be scared to fly and travel abroad. This virus is conditioning consumers, and our consumption behavior will shift as a result.
I believe that the Fed’s unprecedented monetary support has given the markets a backstop, but I do not think that the stock market is accurately reflecting our current economic outlook. It’s going to take more than a year for a vaccine to be widely distributed and probably longer than that for our economy to fully recover.
The markets 12-month forward P/E today is higher than it was at the end of January - where the markets were quite richly valued. Granted, EPS estimates for 2020 are all over the board depending on how optimistic/pessimistic the analyst is, but we know they are going to be bad.
I don’t think that we are likely to test the March 23rd lows because of the Fed’s support, but I see a dip-buying opportunity coming soon.
What I Am Doing
I plan on capitalizing on the likely next leg down. Selling covered call options on your favorite equities is what I see as the safest and probably smartest investment move in this trading environment.
I personally have been loading up on SPY puts with expiration ranging from May 15th to June 19th, to hedge the rest of my equity portfolio. The volatility premium that had these options so expensive is beginning to fall as the market calms and puts are starting to trade at reasonable prices again.
My strategy is to hold puts until the S&P 500 hits the 2650, where I will (hopefully) pull profits from my options and start buying equities. As a disclosure, options are extremely risky financial instruments, and I would not recommend you purchase/write any option contracts unless you understand the risks involved.
On the pullback, I am looking to buy high-quality blue-chip tech stocks with healthy balance sheets and robust outlooks. Tech is what is getting us through this pandemic and it is what will thrive in the post-pandemic economy.
My Shopping List:
Microsoft, Alibaba, Adobe and Nvidia.
Take Away
I am confident that we will be able to purchase them at a discount to what they are trading today. Don’t chase the rally. Patience is the key to navigating these uncertain markets. The equity markets are going to be choppy for the foreseeable future, and the best strategy you can have is averaging down on red days and hold cash on green days. We are back to the good old buy the dip mentality.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.