Displaying items by tag: correction

Monday, 13 July 2020 16:18

Dividend Stocks Pose a Major Risk

(New York)

The market is split over dividend stocks. On the one hand, about half the market thinks the huge wave of dividend cuts are over and that most of the damage has been done. One the other, many worry that not all the deleterious effects of COVID have manifested themselves on corporate behavior and that further cuts may still be in the works. The overall picture seems to be one where caution is due given the big jump in valuations and the continued possibility of further cuts. For instance, bank and credit card companies look likely to cut further as high unemployment leads to worsening credit quality and more delinquency. Wells Fargo just announced a dividend cut, for instance.


FINSUM: Our thinking here is to be careful. Even if the economy does not have another lockdown, the full effects of this recession may take a little time to fully show themselves in dividend cuts.

Published in Eq: Dividends
Friday, 10 July 2020 16:28

We May Be Headed for More Lockdowns

(New York)

Coronavirus cases across the country are surging. On Wednesday the US announced there were 62,000 new COVID cases, exceeding the record set the previous Friday by almost 5,000 cases. Some states, like California have actually started to reverse opening plans, not merely pause them as so many other states have. The huge surge in cases is leasing investors to fret that large-scale second lockdowns may be in the works. Anthony Fauci even openly said this yesterday, adding to fears.


FINSUM: Whether or not you think the case rise is just because of increased testing, the fact remains that as numbers soar, there is growing discourse about lockdowns. That is an undeniable risk to markets.

Published in Eq: Total Market

(New York)

Markets have been rough for the last few weeks. Investors are doubting the pace of the recovery because of a big renewed rise in cases and the possibility of new lockdowns. And according to market analysts, signs are increasingly pointing to another meltdown. If you study various volatility indexes, starting with the VIX, it is becoming clearer that another big move lower is on the horizon. The VIX and other indexes have recently shot back higher after a steady fall after the huge March volatility and their momentum indicates investors may panic sell and create another big correction.


FINSUM: We do not give much respect to technical analysis on its own, but it is useful (in our opinion) as a tool to quantify what one is seeing in the real world. Right now, this makes sense given the rising worries about new cases and lockdowns.

Published in Eq: Total Market

(New York)

If you are upset about the market’s mini-correction last week, don’t worry, it is going to fall more, says Morgan Stanley. In what comes across as almost an insult to regular investors, Morgan Stanley’s research team says stocks may fall another 7% from opening levels today, but that such a fall was “healthy”. On the whole, Morgan Stanley’s position was positive, saying “We maintain our positive view for U.S. equity markets because it’s early in a new economic cycle and bull market. Last week’s correction was overdue and likely has another 5-7% downside. It’s healthy and we are buyers into weakness with a small/mid-cap and cyclical tilt”.


FINSUM: We have definitely entered a new economic cycle, and with it, perhaps a new market cycle. However, the pace with which stocks came back makes one worry the market cycle has not actually reset itself.

Published in Eq: Total Market

(New York)

Stocks are tumbling today on worries that a second wave, and a prolonged economic downturn, are becoming a reality. The Dow opened down 2.4%. Several US states have seen their weekly COVID cases spiking, and total US cases are now over 2 million. Coupled with some not-great economic data from around the world, all 11 S&P 500 sectors are down today. One asset manager in London summed up the situation nicely, saying “The timeline for the virus is being extended. It’s becoming clear that it’s a choice of allowing economies to open and take the public health hit, or lockdown countries and take the economic hit”.


FINSUM: This is tough for investors, but it is hard to argue that markets are not being rational.

Published in Eq: Total Market
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