The overall markets remain resilient in the face of a second wave of the virus. But we are starting to see certain sectors and stocks pull back with the likely extended lock downs.
Most travel related stocks have pulled back strongly in the past few weeks, FLT (Flight Centre) has fallen 38.60%, WEB (Webjet) is down 36.30%, QAN (Qantas) is down 25%. This will be a space to watch once we have a clearer picture on when Australia will reopen boarders.
Energy is a clearly lagging here and, in the US, down 4.66% in the last week and over 30% down year to date. Crude is holding just below the $40 US level. Once again, the second wave of the virus is bad news for the sector as it will delay the much-needed demand. Longer term this sector is attractive, but this year it will likely remain whippy.
The Real-estate sector has been the weakest sectors in Australia this week. No surprise are we see a second wave of the virus hit Melbourne forcing several suburbs back into stage 3 lock downs. Without a doubt this will have an effect of the commercial real estate markets. This is a space that could take a long time to recover as many people will become accustom to working from home and shopping online.
Tech healthcare and staples seem to be overall the better preforming sectors right now but some stocks are starting to become a little expensive so we will be leaning on the reporting season to see which stocks still look like good buys.
The big picture in the short term is Stimulus vs Recession. This recession is vastly different to others in that interest rates are at record lows, with Central banks and Governments stimulating economies like never before.
Low earnings sentiment continues to be the theme as we edge closer and closer to US reporting season in July. The market is generally expecting low earnings this year, so we will be looking at reports through a different lens. We will be looking to see if companies will report better or worse than expectations. Reporting season as always can be volatile for individual companies so keep an eye on the reporting dates.
Australian Outlook
With positive leads from both the U.S move last night and their futures this morning, our market is set to open slightly higher. Our open this morning puts us back towards the highs of yesterday, near the top of the consolidation range.
Provided the U.S remains in the green, we may go on to test the 6000 key resistance. We are unlikely to break through today unless U.S Futures push hard into the green and indicate a break of their consolidation range tonight. What is more likely is a mixed and subdued day of trading as we wait for further leads.
Victoria cases worsen, with new lockdown laws enacted for hot spot suburbs but this will do little to shake our market as it continues to remain disconnected from the real economy. Reasonable hopes of continued stimulus keep markets from falling, and with the trend still up despite the consolidation we still must continue to be bullish until proven otherwise.
US Markets
US markets closed higher again overnight, leading to their best quarter since 1998 as stocks recovered from the March lows. The gains were helped by strong US consumer confidence overnight, as well as statements from many Fed members that the massive monetary stimulus would remain due to the virus crisis lingering for longer than expected. Every major sector pushed higher overnight, with gains led by Oil & Gas and Technology stocks, with Utilities and Telecoms seeing the smallest gains.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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