MARKET OUTLOOK, 04 MAY 2020
The S&P 500 ended the week with down 0.2%, while during the week the market was up as much as almost 4%, Note here that the Russell 2000 gained 2.2%.
Gilead Sciences (GILD) took center stage when it confirmed that Remdesivir, an antiviral treatment for COVID-19, was successful in preliminary trial tests. The FDA approved it for emergency use on Friday, GILD has been a favorite of ours lately and is recommended as part of our uptrending watchlist
Some states are starting to reopen their economies, the market is pricing hope that things could return to normal soon.
In the macro front, there has been an onslaught of weak economic data that continue the line of a disconnect between the economy and the stock market:
- The ISM Manufacturing Index for April declined to its lowest level since 2009
- Personal spending dropped 7.5% in March
- Q1 GDP contracted at a 4.8% annualized rate
Our models price an expectation that the data will get better as we move forward (mainly Q2, Q3) while central banks (strong buyers in current markets) remained committed to supporting the economy.
After a historic rally off the March low of 2182, high valuation weighed on some front runners as 5 of the 11 S&P 500 sectors closed lower.
AlphaOverBeta Next Week Forecast
As the market had a tremendous run since the 2182 lows with no looking back, we expect it to take a breather as there are many .. many traders who believe the worst is yet to come and the market cant have such a strong break from the real economy, we are on the opposite side estimating another leg up and not down, although we listen to traders who make complete sense with the disconnect argument, this is why we will remain bullish as long as the market remains above 2800, below 2750 will force us to rethink our current bullish stand.
Who’s driving the current market?
- Hope! This is based on assumptions that the worst of the Coronavirus economic and health crisis is behind us.
- Cash on the sidelines and a lot of it, FOMO is driving underexposed money managers to compete with the market using their cash reserves.
- Bargain prices for quality and growth stocks, we are still – 15% off the recent lows.
- Hope (again) that a cure for the coronavirus is found in the very near future, as there is an unprecedented global effort and race to develop one.
- Positive LONGTERM view, as in markets will make a new high again, if not in 2020 then 2021.
- Massive cash injection by the fed (QE4Ever), lifting asset prices and preventing another meltdown
- Election – as Trump runs for reelection, he wants this so bad, coming from a business environment, every problem can be solved with… More money! And now he has the deepest pockets in the world
AlphaOverBeta uptrending watchlist
Using AOB Dashboard to spot trending opportunities in the market.
Out top-ranking stock for the week is Apache Corporation (APA)
Apache Corporation is an independent energy company, explores for, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The company has operations in onshore assets located in the Permian and Midcontinent/Gulf Coast onshore regions; and offshore assets situated in the Gulf of Mexico region.
Specific stocks in these sectors may be found on our Dashboard
AlphaOverBeta sectors ranking
Below you may find our leading and lagging sectors.
For the first time in many weeks, we see the Oil and gas sector on the recommended list, this definitely calls for a bottom in the Oil-related companies( note this is not the Oil ETF, these are actual companies that are Oil related), the valuations for such companies has reached very favorable levels and buyers are paying the current low prices, we are long on the sector in our portfolio.
As a norm for the past few weeks the Bio and Healthcare sectors are moving forward and are bullish sectors, this makes sense in the current environment, as they race to find a cure for the coronavirus , the first one to get to the finish line will have most of the gains in this race.