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Don't Panic: Look Beyond the Disappointing Economic Data

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On Apr 15, Wall Street declined sharply bringing an end to its four-day winning streak. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — tumbled 1.9%, 1.4% and 2.2%, respectively on account of disappointing retail sales and industrial production data for the month of March. Moreover, big reduction of most of the major banks first-quarter 2020 earnings aggravated the scenario.

In fact, following the announcement of economic and earnings, a section of economists and financial experts raised the alarm bells. According to some the economy is in free fall, while others are of the opinion that the markets are routing at a record pace. However, is it really so? Is the scenario so alarming? Let’s take a look at it.

Disappointing Economic and Earnings Data Are Not Unexpected

The first and foremost point that should be taken into consideration is the fact that the downturn is not the result of any economic, financial or geopolitical factors but due to a biological hazard in the form of coronavirus. In a post-World War II world, this is the first time that a health hazard has brought the global economy to a standstill.

In absence of any vaccine or a proper line of treatment, social distancing has become the only way to contain this deadly virus. Consequently, most countries including the United States resorted to either partial or full lockdown, which halted even basic economic activities, to curb the spread. In fact, the lockdowns in most places were put in place quite suddenly without much preparedness as the coronavirus spread like wildfire across the world.

A complete shutdown of transportation —  both road and air; closure of shops, restaurants, bars, pubs, hotels and other places of mass gathering; postponement of several big games and sports and entertainment events; and most importantly partial or full lockdown of industrial sector rendered millions of people jobless. Moreover, the global supply chain has been completely jeopardized as the world continues to grapple with the coronavirus-induced crisis.

At this juncture, it is not really unexpected to witness the unemployment rate will skyrocket or the retail sales and industrial production to plunge to their historic low level. Businesses have taken an unprecedented hit not due to a financial crunch or economic disaster but primarily because of the lockdowns. Once the lockdowns are lifted in the United States and globally, the scenario will normalize and improved economic data will emerge.

Consequently, any recently released economic data and other data or ones that will be released in the coming months should not be taken at as the be-all and end-all by investors. At this stage, patience and a long-term view are absolute prerequisites. It may not be a V-shaped recovery but certainly the U.S. economy will recover in the second half of this year and gather pace gradually. 

Strong Pent-Up Demand Likely to Fuel Recovery

As of today, the most vital news is that the recent data exhibits that the deadly virus seems to be slowing down. Although the death toll continues to rise, the curves related to hospitalization, intensive-care check-ins and intubations are gradually flattening. All these metrics are indicating that new cases are slowly decreasing. This is most prominent in New York, the country's coronavirus hotspot.

Consequently, the U.S. economy, at least a large number of states, is expected to open in early May. Some states may lift lockdown before Apr 30. Unprecedented fiscal and monetary stimulus injected by the Trump administration and the Fed, and several major Eurozone and Asian economies have instilled investor confidence.

The Trump administration's decision to spend money in the form of unemployment insurance and giving stimulus checks to retirees, massive restructuring package to small businesses, which generates significant employment and the Fed's decision to inject money in the economy by means of purchasing even the high-yielding junk bonds will create significant pent-up demand.

Moreover, the central bank's decision to keep the benchmark interest rate at 0% at least for the time being will also make funds available to both businesses and individuals. Consequently, Wall Street is likely to witness a more impressive rally.

Several Goods Stocks Available at Attractive Price 

The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plummeted 38.4%, 35.4% and 32.6%, respectively from their all-time highs recorded in mid-February to the lowest level on Mar 23. With this turmoil, valuation of several good stocks - popularly considered as the jewels of Wall Street, also plunged. These stocks are available at lucrative prices now.

Several blue-chip stocks like Apple Inc. (AAPL - Free Report) , Intel Corp. (INTC - Free Report) , The Walt Disney Co. (DIS - Free Report) , The Home Depot Inc. (HD - Free Report) and NIKE Inc. (NKE - Free Report) are currently 15.3%, 17.7%, 48.4%, 24.8% and 24.2%, respectively, short of their 52-week highs.

Other important stocks like Alphabet Inc. (GOOGL - Free Report) , Comcast Corp. (CMCSA - Free Report) and QUALCOMM Inc. (QCOM - Free Report) are still 21.7%, 28.5% and 26.6%, respectively,  below their 52-week highs. All these stocks has a Zacks Rank #3 (Hold) and a strong growth potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Investment in these stocks will be prudent for long-term investors.

The chart below shows the price performance of the above-mentioned stocks in the past month.


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