Last week’s extreme volatility highlighted how the unpredictability surrounding the virus is not going away anytime soon. The ASX came out of the gates surging on Monday and Tuesday as the index soared by 10%. Some investors began to speculate on a possible recovery. Especially, as the ASX was up for the 10th day straight and investors thought Monday and Tuesday’s surge indicated future momentum.
However, the bullish movements were short-lived as the coronavirus fear crept back into the market on Wednesday. Resulting in a bearish decline for the rest of the week.
Overall, the ASX gapped up 4% last week. However, last week’s increase appears to be immaterial as the ASX rollercoaster continues to make the market unpredictable. Nevertheless, it is vital to keep a track record of Market Sensitive Events (MSE’s) to make some sense of the volatility.
Market Sensitive Events – Last week 30/3/20 – 3/04/20
- Scott Morrison implemented a $130 billion wage subsidy stimulus package to maintain employment levels
- The government made childcare free for households that have two working parents
- February consumer spending data rose by over 1.5% in a month (RBA), beating the markets expectation
- The number of unemployment claims rose from 6.6 million to 10 million in the U.S.
- According to the White House, the best-case scenario, is that about 250,000 Americans will pass away from COVID-19
- Lockdown measures in Australia will be active for at least the next six months
- Australia’s two largest aviation companies Qantas and Virgin are seeking government payouts to keep themselves afloat
- Discretionary spending on clothes & footwear fell to its lowest levels in over eight years
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Considering the past two weeks of growth in the market were contrary to the expectation of a continued downward trend, we could be in for another bullish week.
A flattening of the coronavirus curve coupled with more stimulus packages(US & Australian) could see the bullish momentum sustained.
If the market continues to climb even higher, then I would be keeping a close eye on the Big Four Banks, Qantas, and the best-performing stocks of last week (table below). Because these stocks appear to have a positive correlation to market gains during the coronavirus.
Personally, I believe a bearish scenario is a likely outcome, if not for this week, for the following weeks and months.
The coronavirus case toll just crossed over 1.2 million and is showing no signs of stopping. The more people who are infected means, the longer we are in lockdown, the longer businesses stay shutdown, and thus, the more people that become unemployed.
NAB supports the coronavirus domino effect as they forecast unemployment to surge by 12% by June 2020.
Moreover, the U.S, in particular, New York are bracing for the worst as they report 321,517 cases and growing (at the time of writing). With the US forecasting, the rapid growth in cases to continue, investors are expecting the market to be down. Thus, if the US market falls, its little brother, ASX 200 is likely to follow in the same footsteps.
We are in a bear market. Every bear market comprises of three phases. Phase one is where the index falls off the cliff (check). Phase two is a false recovery (likely what we are experiencing now). Lastly, phase three is where the market falls even further exposing the false reversal before.
To say that we are on real recovery is a bit presumptuous. The bears came out of the woods, decided the bring the market down, and are showing no signs of letting go.
If the bears reveal their true nature this week, then I am keeping a close eye on Gold and BBUS, an inverse ETF that performs opposite to the S&P 500. Also, here are the key events that you must look out for during the week:
- Monday: ANZ Bank’s job advertisement statistics for March. Sharp fall expected.
- Tuesday: Reserve Bank board meeting. Expected to leave the cash rate at 0.25 per cent
- Tuesday: National cabinet to review modelling on the trajectory of coronavirus spread in Australia.
- Thursday: RBA Financial Stability Review.
Now no-one can predict the expiration date of the coronavirus. However, there are many economic factors alongside our human behaviour that are pointing towards a long-term bearish trend.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin & Sergeo Domtchenko, Senior Manager and Associate of YIG.