At the end of 2019, every stock investor cheered as the markets rose nearly 30% for the year. By the end of the first quarter of 2020, investors were running for the exits. Now the Nasdaq is near record highs and the other indices have recovered their losses, even as the coronavirus still rages across the nation and economic lockdowns remain the norm.
It’s enough to drive an investor crazy!
Now we’ve reached the halfway mark for the year and investors will have to decide if they want to stay in the game and see if stocks zoom higher, or stand aside and protect some of their capital. There’s a lot to consider when making that decision.
The recent gains aren’t limited to the U.S. The Chinese stock market is also back to multi-year highs. Central banks around the world are printing cash like crazy, and employment in the U.S. has rebounded sharply.
Russell Silberston, co-head of developed markets FX and fixed income at asset manager Ninety One, said:
“For now, markets are still in a sweet spot. It’s not until the end of the quarter that we are going to get some visibility. If you believe markets are forward-looking, perhaps they are overly optimistic.”
We still have the coronavirus raging across the U.S. and re-emerging in other countries, and the federal bonus unemployment checks are set to run out at the end of the month.
Citi strategists say consensus expectations for end-2021 earnings per share are 30% too high, which would imply that stock valuations are also too high. Earnings reports over the next few weeks most likely won’t offer any clarity, as they will be a look back as the crazy second quarter.
But the government could come through with more stimulus, even something as simple as extending unemployment bonus checks and change the calculus. Add in some outright relief for cities and states, and perhaps another round of checks to private citizens and the second half could be great… for a while.
The problem is that no one knows what will happen with the spread of the virus, so the government reaction and even corporate earnings remain in question. All investors have to go on is hope, and at the moment they seem to have plenty of it.