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Last week was a negative week for equities and a consolidation week for bonds, generally speaking. Negative news flow associated with COVID-19 dominated the headlines as expected. It appears likely that next week will be more of the same in regard to news flow. At some point over the next two weeks, some positive news flow could emerge as the U.S. gets closer to projected peak number of COVID-19 cases. Follow this link for projections: https://covid19.healthdata.org/projections Once the news flow turns positive, there is the potential for rapid moves higher in equities over the short term.
Over the longer term, it is more difficult to project how quickly the real economy will recover. Can businesses spring back to life quickly, or will the restart take time? Quite likely the answer is both. The dislocations in the economy due to COVID-19 are many and varied. Certain businesses will spring back quickly and others will take time. This process is creating winners and losers. In the face of a pandemic it is difficult to focus on market opportunities, but the dislocations mentioned above are creating opportunities to outperform the averages over time. Taking advantage can take many forms. The simplest of which is simply to continue investing in one’s IRA or 401K. Dollar cost averaging over time pays dividends. Over the next several months, allocating more dollars to a retirement fund is likely to pay dividends over longer time frames. More aggressive forms taking advantage might consist of “special opportunity” portfolios that attempt to sort through equities to pick winners and avoid losers.
Over the next week one might expect baseline news flow to be negative with the possibility of green shoots of hope. Since peak resource use is projected around the middle of the month, baseline news flow is expected to be predominantly negative through the peak. It will likely be hard, but not impossible, for equities to rally without a change in news flow tone.
Best Wishes!
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