Written by Sergeo Domtchenko
The bears emerged victorious this week after ending the false five-week bull run. While the ASX 200 posted a small gain on Friday, the market fell by 4% over the week. Making many investors curious whether the market is entering yet another bearish decline? Considering the news was more negative than positive this week, the chance of the bullish run returning is slim to none.
Does this week mark the start of a bear market?
Before we jump the gun, our readers must understand this week’s Market Sensitive Events (MSEs). MSEs provide investors explanations of why the market moved either up or down for the week.
Market Sensitive Events over the Past Week
- Further data continues to suggest a flattening in the curve and a reduced transmission rate of COVID-19 in Australia.
- Amazon continues to surge during the crisis after hitting an all-time high of U.S. $2425.48.
- ROKU, much like Amazon and Netflix, skyrocketed due to the coronavirus causing a tsunami of investors to flock towards streaming services.
- Snapchat surged by 36% on Wednesday after posting strong quarterly financials.
- Mesoblast rose by 40% on Friday after their clinical trial saw 83% of patients suffering from ARDS, a COVID-19 side effect, recover.
- According to the ABS retail spending was up 8.2% in March.
- The $AUD continues to suffer, currently trading at 63 U.S. Cents.
- Virgin Australia entered voluntary administration.
- Radio Rentals announced it would be closing all 62 of its retail stores due to an extremely low demand.
- WTI Crude Oil fell below $0 for the first time (trading as low as -$37.63 at one point).
- 26 million people applied for unemployment benefits in U.S this week.
- The global death toll from COVID-19 surpassed 200,000; with the U.S. & UK fairing the worst at 50,000 and 20,000 deaths respectively.
- According to an ABS survey, 12% of the workforce that had a job at the beginning of March, ended up having no job at the end of the month.
- The RBA released some telltale forecasts in which it predicted economic growth to contact by 6.7% during 2020. Furthermore, it expects unemployment to exceed 10% as early as July, and expects unemployment to linger at around 6% in the coming years.
- The RBA also expects inflation to contract by 1.2% by the end of the year. The last time the ‘basket of goods’ got cheaper over the year was back in 1970.
Is this the end of the bull run?
Short answer: Yes, and I expect the markets to be red for the week. (Opinion not advice).
The markets move because of human behaviour. Humans, being social creatures, want to interact. Our desire to socialise coupled with a decrease in COVID-19 cases is causing the government to relax the restrictions in the imminent future. Once people are no longer in quarantine, if they do not act sensibly then the likelihood of a second wave is probable. Causing fear to enter the minds of institutional investors, governments, and average investors. Ultimately, triggering another sell-off.
In addition to the behavioural economics, the IMF provided us with some dire warnings over the global economic outlook. Over the past week, a staggering 50% of all nations asked for financial support from the IMF to support them during the pandemic. Furthermore, the IMF expects the global economy to contract by 6% come the end of 2020.
Nonetheless, it is still essential to be across COVID-19 developments. Let’s break down what we do know so far.
Newly released data continues to show a flattening in the curve and a reduction in the number of new COVID-19 cases. Markets will be focusing their attention on possible treatments/trial results and the hopes of easing social restrictions. However, the gradual relaxation of social restrictions will be a crucial factor that will be playing on the minds of many investors.
2. Local Company Earnings & Updates
The likes of Woolworths, Coles, and ANZ (to name a few) will be releasing earnings data for the past quarter. If we do see worse than expected figures, can we expect a market correction to come during the middle of the week?
3. U.S Earnings Session
This week will see the U.S. earnings session really ramp up. The likes of companies such as Alphabet, Amazon, Microsoft, Tesla, Boeing, Mastercard, and Ford will all be releasing quarterly financials. With U.S. earnings having very little correlation to market performance over the past weeks, it will be interesting to see if this trend continues into this week.
4. Local Economic Data
Over the coming weeks, the RBA will be releasing economic data for the past quarter and its forecasts for the next few months. It will be interesting to see whether or not the dire nature of these statistics puts the brakes on Australian indexes.
Stocks to Watch in the Coming Week
|Stock||Trading Price||Weekly Gain|
|Pinnacle Investment Management Group (ASX: PNI)||$3.67||12.23%|
|Regis Resource Ltd (ASX: RRL)||$4.54||11.27%|
|Evolution Mining Ltd (ASX: EVN)||$5.18||9.28%|
|Silver Lake Resources Limited (ASX: SLR)||$1.96||9.17%|
|Saracen Minerals Holding Limited (ASX: SAR)||$4.40||5.26%|
|St Barbara Ltd (ASX: SBM)||$2.58||4.88%|
|Northern Star Resources (ASX: NST)||$13.19||4.1%|
|Platinum Asset Management Ltd (ASX: PTM)||$3.41||3.65%|
|Wisetech Global Ltd (ASX: WTC)||$16.24||3.31%|
|Crown Resorts Ltd (ASX: CWN)||$8.35||2.33%|
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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.