Worsening Virus Trends Are Raising Alarms for Stock Investors – ValueWalk Premium

Worsening Virus Trends Are Raising Alarms for Stock Investors

As the likelihood of additional federal stimulus fades, U.S. stock investors are returning their focus to the coronavirus pandemic and not liking what they see.

Q2 2020 hedge fund letters, conferences and more

High-frequency data that tracks economic activity shows a slowdown in the recovery from the height of the lockdowns, with Americans again cutting back on flights and going out to eat less often. Public-transit use also remains low, while jobless claims are stubbornly elevated. Meanwhile, the prospects for a vaccine in the next few months have also waned just as the latest data shows an uptick in cases.

That again sent a jolt through financial markets. Equities eked out gains after a volatile session, with tech shares bouncing back from Wednesday’s 3% rout, but the S&P 500 remains on pace for their longest weekly losing streak since August 2019.

For all the things buffeting markets right now, none is more important than the race to find an inoculation to the virus. While Federal Reserve largesse and $3 trillion of federal stimulus helped fuel a torrid five-month rally that began in March, their limitations have become clear as the virus continues to spread.

“We have been trading the likelihood of a vaccine and you can see that in the data,” David Kostin, Goldman Sachs Group Inc.’s chief U.S. equity strategist, said in an interview with Bloomberg TV and Radio.

For proof, he points to a forecasting model that assigns a 52% probability that enough doses to inoculate 25 million Americans will be distributed by the first quarter of next year. That’s down from around 70% at the start of the month and the drop-off coincides with a near-10% selloff in the S&P 500, says Kostin.

Plenty of non-virus worries have also emerged in recent weeks, including fears about a chaotic aftermath to the presidential election as well as heightened tensions between the U.S. and China.

But individual stock moves are easy to pin on virus concerns specifically. As hopes for a vaccine subside, cruise ship operators, airlines and other stocks that stand to benefit from a return to normalcy are taking a hit.

The NYSE Arca Airline Index has fallen more than 12% over the past four days, on course for its worst week since May. Norwegian Cruise Line Holdings Ltd., Carnival Corp. and Royal Caribbean Cruises Ltd. are each down more than 9% this week.

Read the full article here by Vildana Hajric, Lu Wang, Advisor Perspectives


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