Next Comes The Economic Restart
An interesting week ahead. The market fell (panicked), rallied (regained sanity) and then peaked again last week. In response to the latest 'top' we have run up our cash again, to 40%, and are ‘hiding like chickens’ in bigger market stocks. But not forever. The coronavirus continues to hold society in its grip, but the stock market doesn't price stocks on what they are worth today, it prices stocks on what they will be worth in a month, a year or sometimes even further ahead. Investors have to get ahead of the headlines not wallow in them. NEXT COMES THE ECONOMIC RESTART The next headlines are going to be about every economy restarting, lockdowns ending, getting back to work and before long sports, bars and restaurants getting back to business. Next you will find yourself at the airport flying to that international holiday resort for that holiday you deserve (with 23m of your closest mates) and those roving retirees are going to be rushing to book cruises at huge discounts that will not last. The moment you start allowing groups of 10 the lid is off, you can't police social-distancing and the economy gets going. Even if it is too early (which it might be...who knows), the next stock market theme is going to include the economic restart despite a tail of now dated, prudently cautious medical advice and overly-concerned social commentary that will soon sound "so last month". At the same time, whilst we wallow in the headlines about 4.4m people losing their jobs in the US in a week and 26.5m unemployed in five weeks, you have to undertstand, the next headline is going to be 4.4m people getting back to work in a week. (Well...maybe the headline after next). An Ernst & Young analysis says that if we come out of lockdowns in 1-3 months the economic recovery is V-Shaped. Six months later it is a different matter. For the economic damage to be contained, the economy has to re-open sooner not later. In which case every politician is sitting at home knowing that if they don’t get everyone back to work and soon they are never going to get re-elected. No politician wants to be the last President, Prime Minister, Monarch, Premier, Governor, Senator, Congressman, MP or Councillor holding out on their electorate's right to make a living again. At some point political necessity will overwhelm the Medical directions. It's already happening. Hence...an interesting week. Will the market take this message on board and have a rapid sentiment recovery or will this recent ‘peak’ establish itself. This week may be the turning point. We are getting ready to dive back in and building a watchlist of stocks to buy. The Coronavirus was very swiftly factored into the markets. The recovery will be as well. WHICH STOCKS There are a host of stocks at the pointy/risky end of the COVID-19 sell-off. Stocks that are still flat on their sentiment backs trading at prices we will look back on and cringe that we didn’t have the presence of mind to buy at the bottom. It's risky stuff, but we are getting prepared to commit at least some of the fund to ‘recovery stocks’. Not today, but if the market gets the “COVID-19 is over” bit between the teeth this week, we will be looking at some of the following stocks. There are stocks that have been directly hurt by COVID-19. There are plenty of other less risky stocks, I see a Livewire article talking about 5 pandemic-resistant stocks, but maybe you want to buy the stocks that have the most to gain from it going away. Not the most resistant, but the most affected. Come the resurrection all the stocks that have served you well in the downturn, because of their resistance to the virus, will under-perform those that have done it hard. So here are some stocks you could buy for when the market gets going again after the coronavirus wears off, the more geared plays: Please feel free to email me any stocks I have missed or suggest them in the comments below - CLICK HERE On top of these you could obviously put in a few groups of stocks including:They say "Buy the dips". We are in the middle of one. To be a Super-Bear from here you have to imagine some terrible development that matches the full-blown headless panic that created the low on March 23. Whatever it is, I can gurantee, its low odds, and even if its right, the stock market will not believe it until it happens. TIMING For the moment the market and the individual stocks are not throwing off buy signals, quite the opposite. So we sit with 40% cash and wait for the ‘moment’ that changes. The day we wake up and find 10% of the All Ords stocks have RSI buy signals will be the sign. It could well be this week. It may not be. But behind me on the Sky News, Australian politicians are being openly attacked for being too cautious and killing the economy. The COVID-19 sentiment lows are in. The COVID-19 low point is behind us. Stock market sentiment will recover. We all just have to time that and decide where on the risk curve we want to be, and we can do that through either bland ‘market’ exposures or aggressive stock selection. We’ll almost certainly do a bit of both. At the right time. We'll be discussing that daily....
- Motor Industry.
- Media (Advertising dropped off a cliff).
- The sentiment driven growth stocks in the ALL TECH sector - in hindsight there are always some events that 'mark the top', like three stock brokers listing in 2007 ahead of the GFC, the moment they create an ETF to address a fad, it ends. And the day they created the All Technology Sector the sector disastrously peaks on the cornoavirus. It will resurrect. .
- Highly indebted stocks that ran scared of a credit crisis - Infrastructure, Utilities.
- REITs - also upset by the risk of a credit crisis.
- Stock market stocks - Anything geared to the stock market, fund managers, Macquarie, Computershare, HUB, NWL, IRE, PTM, PPT, MFG, ASX.
We are preparing to buy for the recovery on the assumption that in a couple of months COVID-19 will be a passé market theme and we will be looking forward not back. Yes it could be wrong, yes we could come out of lockdowns too early and see a relapse, yes there are some dire economic headlines ahead (relaying details of damage in the past) and yes there are some significant company earnings updates ahead of us, none of which will be good. But all these will be marking the bottom, not heralding the future.