June 2020: The Furious Rally!
Nasdaq Hits New Heights!
Now what?
Date: Saturday, June 6th, 2020
On Friday, non-farm job stats pointed towards 13.3% unemployment vs. expected 20%+. It was biggest ever 1 month gain in history! Market skyrocketed as it marked workforce recovery and economic turnaround. It strengthened the V-Shape narrative.
Current State:
- SP500 3211 as highpoint
- Nasdaq 9845 as all time fresh high
- DOW 27,388 as as highpoint
Major economists started scratching their heads if the data is greatly exaggerated or distorted. BLS acknowledged data errors on Saturday morning. Unemployment rate should be 16.3% vs. 13.3%
Future State:
After our social gathering and input from our friends, we agreed that:
- Nasdaq may show capitulation symptoms
- Rally requires a large dose of good news
- SP500 still have room to hit 3400 (5%)
- DOW is outdated but 8% room to go!
- Market may go sideways for short term!
- Definite conclusion, no BULL market!
Ambitious Reopening, Policies n Reality:
- PPP borrowers account for 50m jobs
- GDP projected to be negative 40% in Q2
- 20,000+ COVIDs per day in US
- This is the SHORTEST recession ever!
- “DISCONNECT” between Wall vs Main st.
- Is market running ahead of fundamentals
- Gap of 25 points between Russell 1000 Growth vs. Russell 1000 Value index.
- SP500 RSI is at 70! Rarely gets higher!
- SP500 PE is above 22 now! Highest ever!
- Is rally getting superheated?
- $5 trillion is waiting sidelines, it can fuel the market further!
- Are govt. policies really effective
- Companies obtaining printed $$ by FEDs
- Massive fiscal stimulus have undergirded the economy
- Workers’ hourly earnings are diminished
- Facemasks have become a fixture of post-lockdown life
- Masks create a false sense of security
- Q2 and Q3 EPS are revised and lowered enough and can be beaten easily!!
- Still substantial risks!
The fact is that there is also some evidence of recovery. States have reopened and coronavirus case counts have not spiked as many feared. Caution is still warranted. Businesses may simply take some time to assess if economically restricted opening is viable! Market is pricing a less bad scenario. We still have a long way to go!!
Head Scratchers’ Action Plan:
- Think, is it too much, too soon?
- What can we do as an investors?
- There are downside risks!
- Simple answer, rotate money!
- Get closer to the beaten stocks.
- Get closer to the value stocks.
- Get closer to the Russell 2000 while PPP program expands further.
- Take money off from Nasdaq…
- Focus on dividend stocks…
- Get more diversified…
- Focus on some REITs, Industrials, Materials, Discretionary, Energy and Financials together not just one sector
- If SP500 hits 3400, it will be these stocks!
- Airlines and cruiselines have moved a lot more faster… be cautious! Airlines will be 25% smaller so calculate!
- Beware of Robinhood investors and their billion $$ as the influencers!!
- As good investors, defend your portfolio!
- Focus on stocks that are positioned for a strong comeback.
- Focus few weeks on conservative play!
- Don’t focus on stocks doing best!
- Don’t focus on stocks falling good!
- Pay attention to PE ratio!
- Pay attention to cash and equivalents
- Also as investors, stay away from non-profitable stocks and penny stocks! Anything under $10 is waste of your time!
- STAY away from CHINA stocks!
- Don’t fall into trap of stocks like ZOOM, WORK… focus on REAL companies!! Companies that make real money and have proven track record!!
- Focus on balance sheets and ability to pay dividends as key indicators!
- Focus on auto sales, US manufacturing index, home sales, restaurant sales numbers as fundamentals for economy
- If you want to buy 10 tickers, buy 7 ETFs and 3 Stocks max! Focus on sectors!! Use your brains not greed!!
- Don’t buy leveraged or inverse funds!
- Pay attention to earnings
- Shift focus to 2021 earnings
USA vs. China
Nasdaq and NYSE are the top stock exchanges in the world. One of the Chinese government’s goals is to have the country’s Shanghai and Shenzhen exchanges become some of the premier equity trading hubs in the world. Let RMB or CNY become the international currency. Therefore, for USA, it will be a loss to lose premier brands like Alibaba and Baidu from USA market!! Moreover, US investors will find it harder to buy shares in Chinese companies and market may not value them due to geopolitical and trade war risks.
So what tickers to Focus?
- Below is the list of 30 tickers.
- 100% of these are ETFs.
- Idea is to focus on fundamentals.
- Fundamentals to assert themselves
Conclusion:
- Rotate sectors!
- Focus on fundamentals
- Invest in REAL companies
- Go for rock solid balance sheets
- Now is the time to be fearful
List of ETFs
- DIA
- SPY/VOO/IVV
- IWB/VONE
- IWM
- IWD
- XLI
- XLU
- ITA
- IYT
- XTN
- XAR
- VTV
- XLF
- VFH
- VNQ
- XLRE
- PEJ
- PBJ
- XLE
- DVY
- USMV
- SPLV
- IWV
- RSP
- DLN
- VYM
- VIG
- AWAY
- SDY
- XME
Enjoy and take care of yourself!
“The purpose of our lives is to be happy.” -Dalai Lama
“The purpose of our lives is to be happy.” -Dalai Lama
