Weekly unemployment figures surged to an astonishing 6.65 million in this morning’s initial jobless claims release, doubling last week’s record-breaking figure. In the past 2 weeks, roughly 10 million US workers filed for unemployment, marking the fastest unemployment spike in the history of the US. Tomorrow’s monthly unemployment figures are expected to be nothing less than terrifying. This anticipated unemployment tidal wave is following the lowest unemployment rate in half a century.
So why are the markets rallying today following this news? It’s because most of the bad news has already been priced in, and the fiscal stimulus plan is keeping people afloat...for the time being. The recently passed stimulus plan is encouraging people to file for unemployment and keeping money in Americans pockets. Instead of just receiving the roughly half your wages (standard benefit), the stimulus bill is now giving the unemployed an additional $600 dollars a week for the next 4 months.
The markets aren’t concerned about short-term unemployment because these workers are being taken care of. The US equity markets are assuming that this pandemic will begin to subside in the next few months, which is not out of the question.
China and South Korea have been able to control the virus through strict quarantines and extensive testing. These countries are now getting people back to work. The US and countries around the world are taking similar measures. Extensive testing is going to be crucial to control this virus in the short-term, and a vaccine/treatment is vital for life to resume as it was before.
The good news about this quarantine occurring during this age of technological achievement is that many American workers can provide the same productivity from home as they would in the office. We are lucky to be living in an era where technology has provided us with such flexibility.
A Rapid Recovery (Bull Case)
J Powell and his exceptionally dovish policies have gotten a lot of heat from critics who are scared that unlimited QE will destroy our currency and send interest rates below zero, but these policies are working. The Federal Reserve is keeping the credit markets liquid during this highly uncertain period.
With interest rates falling to all-time lows, good liquidity, and relatively healthy balance sheets (for now), the US is setting itself up for a booming economy, if this virus can be controlled within the 6 months. We may come out of this event-driven recession stronger than ever, and the roaring 20s will commence. This is the bull case for our current situation.
Potential Depression (Bear Case)
The bear case is much grimmer, but I think less likely. The economy takes more than a year to resume normal functionality, and unemployment goes north of 20% for an extended period. The demand shock ripples through the halted economy, and the government can’t print enough money to save Main Street while Wall Street’s capital dwindles. The global credit & equity markets crumble and we enter an economic depression.
I am optimistic about our ability to control this virus, and I am bullish on the stock market in the long run. This is not to say that we don’t have more room to fall, but I believe that the measures that are being taken now will reduce the long-term impact of this virus.
I am looking to buy stocks as the market dips, specifically well-capitalized tech copmanies that have given many Americans the ability to function without leaving their homes. I believe that this pandemic driven recession has already been mostly priced into stocks and that once we start seeing the number of cases level off, the markets will recover rapidly.
The algo-driven markets price in news almost immediately, and you want to position yourself well for this recovery before it hits. This could be one of the best buying opportunities in our lifetime.
Stocks I’m Watching:
Alibaba (BABA - Free Report) – controls the e-com and cloud market in the most populous country in the world
Microsoft (MSFT - Free Report) – an essential cloud player with its hand in seemingly every cutting-edge technology
Sea Limited (SE - Free Report) – leading the digital revolution in Southeast Asia
Adobe (ADBE - Free Report) – an essential cloud software for digital creation and marketing analytics
Micron (MU - Free Report) – Mobile hardware memory chips that are crucial for mobile technology
Nvidia (NVDA - Free Report) – Deep learning and AI potential in data centers for automation and cloud computing
The level of market uncertainty remains high, and I expect that volatility will be with us for a while. I believe that we still have room to fall, and I am hoarding my cash in anticipation for the next dip.
As I always say, the best strategy in times of high volatility and uncertainty is to average-down on red days. Makes sure that you have set price points that you are comfortable with to avoid emotion-driven trading.
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.
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