The long road home. Stocks staged a rally yesterday as another virus treatment candidate emerged with promising results. The Fed is worried about the lasting effects the pandemic will have on the economy and is willing to do whatever it takes to keep it healthy.
N O T E W O R T H Y
The downside to the upside. I, like many of my colleagues in the industry spend a majority of a 24 hour day worrying about the downside. It is after all, one of my primary responsibilities. I am pretty sure that my regular readers are not surprised by this admission as it should be clear in my writing. I am ever in search of the long term, consistent, positive currents that are the basis for a healthy investment portfolio. I have two nemeses: short term risks (bumps in the road) and fad investments. Let’s skip talking about the former as we have been obsessed with that for the past several months. Fad investments are those that pop up making everybody believe that it will be the next big thing like the one you missed twenty years ago, compelling you to violate your investment strategy and buy, buy, buy. Unfortunately, the buy, buy, buy usually leads to bye-bye-bye to a chunk of one’s savings. To be fair, some fads do end up becoming long term wins, so we can’t avoid them altogether. So how do we weed those out? First, it is important not to confuse speculation with investing. A hot new stock with no revenues and a high valuation is speculative as is the stock of a company that used to have lots of revenues but lost its way and has been beaten down badly making its dividend appear really high. It is high for a reason. It is not difficult to identify these types of companies and they do have the potential to rise in the short term. Unfortunately, they usually have the same, if not better potential to fall in the short term. OK, let’s move on from short term speculation. Recently, the investment world was turned upside down by the pandemic. Even the most pessimistic economists could not have pondered an event which would include the world’s largest economy putting itself on hold, driving unemployment to historic highs from historic lows while simultaneously turning the longest economic expansion in modern times into a recession. Well… that happened, and the market’s initial reaction was understandably negative. The market has since calmed down a bit, reversing some of the initial losses. Out of the ashes emerged a new investment theme. Lockdown stocks have become a thing. Companies like Clorox (CLX), Peloton (PTON), Campbell Soup (CPB), General Mills (GIS), and Zoom Video (ZM), amongst others, have all benefited from folks hunkering down in their homes hoarding disinfectant, cereal, and cans of soup while simultaneously trying to stay healthy, take online classes, and telecommute. Some old favorites have also gotten a boost. Amazon (AMZN), Walmart (WMT), Netflix (NFLX), and Take-Two Interactive (TTWO) have all seen recent surges in sales… and stock prices. In the past two weeks, the country has made a noticeable pivot as lockdown restrictions begin to ease in certain places. We have seen promising results from Gilead (GILD), Moderna (MRNA), and Inovio (INO) with plenty of others in the works. We have seen some bouts of weakness in the lockdown stocks on days when the market sentiment is positive, raising some eyebrows. While it is not clear exactly when things will get back to normal, most experts are focusing on 2021 for the comeback year. With that coming into view (it is only about 6 months from now), it has me wondering… about the downside to the upside. Will these “lockdown” stocks continue to thrive as the world gets back on its feet, or will we look back at them someday as fad investments? Worrying is my job.
Stocks traded up yesterday on more promising vaccine news. The S&P500 climbed by +1.67%, the Dow Jones Industrial Average traded up by +1.52%, the Russell 2000 rose by +3.0%, and the Nasdaq Composite Index advanced by +2.08%. Bonds climbed and 10-year treasuries were unchanged at 0.68%. The 20-year note re-debuted yesterday for the first time since the 1980s and it close with a yield of 1.16%.
– Philadelphia Fed Business Outlook (May) is expected to have improved to -40.0 from -56.6.
– Initial Jobless Claims (May 16) are expected to show an additional 2.4 million first time claims for the week, down from last week’s 2.981 million.
– Markit Manufacturing and Services PMI’s (May) are expected to come in at 39.5 and 32.3 respectively, improvements over the prior readings of 36.1 and 26.7.
– The Leading Index (April) may have slipped by -5.4 compared to last month’s -6.7% slide.
– Existing Home Sales (April) are expected to have dropped by -19.9% compared to March’s -8.5% pullback.
– The stock market will close at 2:00 PM tomorrow and will be closed on Monday in observance of Memorial Day.
Muriel Siebert & Co., Inc. is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, Inc. Siebert AdvisorNXT, Inc. is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.
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