Written by Sergeo Domtchenko 

What, the market is up again? Despite a poor Quarterly U.S. Earnings Session and countries such as England extending their lockdown periods. If you are confused, you are not alone. Especially as some commentators are saying that we have hit the bottom, while others are telling us to prepare, as the worst is still yet to come.

While Wall Street went through a turbulent patch, the ASX 200 put in another very solid week. The index rose to be 5.4% higher, sitting at 5487.5 points. This is a 20% gain from the market lows that we experienced on March 23.

Do the past four weeks of consecutive gains mark the start of a bull market?

Before we race to any conclusions, it’s important that we understand this week’s Market Sensitive Events (MSEs).Because MSEs provide investors explanations of why the market moved either up or down for the week.

Market Sensitive Events from last week

Positives

  • The Morrison Government announced its intention to have students back in classes in the coming weeks.
  • The Trump Administration publicly announced that it is looking into reopening the U.S. economy in phases.
  • People in Wuhan (the origin of the pandemic) were allowed to leave their homes for the time in three months.
  • The Trump Administration has settled with the major airlines of America to provide a U.S. $2 trillion support package to keep them afloat.
  • The $AUD continued to hold its ground; currently trading at 64 U.S. Cents.
  • The number of new cases of COVID-19 in Australia hit zero for the first time on Thursday.

Negatives

  • The UK officially extended its lockdown period as a further 932 people passed away from Coronavirus on Thursday.
  • The level of unemployment in the U.S. has seen all the jobs that were created since the GFC
  • Banks around the world are bracing themselves as more people are expected to default on their loans in the coming weeks.
  • Quarterly earnings fell between 40-90% amongst the major banks in the States.
  • More than 50% of all nations have applied to the IMF for ‘bail out’ loans.
  • The IMF forecasts that GWP will contract by -3% this year, with Australia’s GDP predicted to contract by -6.7%.
  • Home associations reiterated to us that median house prices could fall by as much as 40% this year.
  • Virgin Australia was denied the approval of receiving government funding to continue its operations.
  • Westpac’s Consumer Sentiment Index fell by -5.4% to its lowest levels in all 46 years of its existence (currently 77 index points).

Will markets continue to climb higher this week?

Before I start, I am obliged to remind our viewers that this not advice, only general commentary from my extensive research into this area.

In short, I do expect the market to continue climbing this week. The past few months has attracted a lot of new investors that are buying into heavily discounted stocks, causing indexes to correspondingly rise.

However, it will be interesting to see if markets do correct themselves amidst poor Quarterly Earnings that were posted both in the U.S. and Australia. Moreover, as reaffirmed by the IMF, global economic conditions have continued to deteriorate. Thus, if you can’t justify why the markets are up, I highly suggest investing in a long-term strategy that will ride out the current volatility of the markets.

Nonetheless, it is still important to be across COVID-19 developments. Let’s break down what we know to date.

Coronavirus

The number of new cases of COVID-19 in Australia hit zero for the first time on Thursday. Markets will be focusing their attention on the early signs of a flattening in the curve. A decrease in the hospitalisation rate should give investors a glimmer of hope in economies reopening. However, fears have been expressed for a second wave of infections after social isolation restrictions are loosened.

U.S. Earnings Session

This week will mark the second week where companies will be releasing their quarterly financials. A few big names for this week include Netflix (NFLX), Delta Airlines (DAL) and American Express (AXP). From results last week, it seems Corporate earnings have had very little correlation to market performance. The question begs, is this optimism sustainable?

Local Economic Data

The ABS will supply us with more timely data that will measure the household impact of the Coronavirus. This will include items such as weekly wages and job updates. It will be interesting to see if this data takes the wind out of the sail in the current market conditions.

Stocks to Watch in the Coming Week

Stock Trading Price  Friday Gain
MAYNE PHARMA GROUP LTD $0.42 9.09%
STOCKLAND $3.05 8.54%
ESTIA HEALTH LTD $1.56 8.36%
SYDNEY AIRPORT $6.28 8.28%
SKYCITY ENTERTAINMENT GROUP $2.40 8.11%
GROWTHPOINT PROPERTIES AUS_ $3.10 7.27%
QANTAS AIRWAYS LTD $3.72 7.2%
ATLAS ARTERIA $6.10 7.02%
CHARTER HALL GROUP $7.75 6.9%
TRANSURBAN GROUP $11.10 6.72%

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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 Sergeo Domtchenko, Associate of YIG.

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