COVID’s Resurgence Spooks Wall Street (for Now)
I recently re-watched one of my favorite movies: The Andromeda Strain (1971), about a killer virus from outer space. Seemed appropriate, considering the headlines these days. A sub-theme of the movie is how the struggle between scientists and politicians creates missteps in containing the virus, making the death toll worse.
Life often imitates art. This week in the U.S., as public health officials continue to feud with politicians about how to handle the coronavirus, cases are soaring to alarming levels. Wall Street is getting whipsawed between encouraging fundamentals and the deteriorating situation with COVID-19.
Below, I’ll point you toward a strategy that generates consistent income, regardless of the pandemic’s trajectory. But first, let’s see what’s driving daily market action.
Improving earnings, worsening virus…
Investor relief about strong corporate profits and the election’s conclusion was offset Thursday by growing fears about the coronavirus. The post-election relief rally sputtered. The Dow Jones Industrial Average yesterday fell 317.46 points (-1.08%), the S&P 500 shed 35.65 points (-1.00%), and the tech-heavy NASDAQ slipped 76.84 points (-0.65%).
Stock futures were mixed Friday morning, as solid earnings played tug-of-war with virus fears. In pre-market trading, tech stocks were higher but industrials were swooning.
Stocks will continue to ebb and flow over the short term, as better-than-expected earnings vie with worse-than-expected coronavirus outcomes. After initial confidence that it would soon be contained, COVID-19 is gaining virulence, just as the winter flu season kicks into gear.
The news about a possible vaccine is mixed. Despite the much-ballyhooed vaccine announcement this week from Pfizer (NYSE: PFE), it’s increasingly apparent that an FDA-approved vaccine won’t be ready for several months and even then, we’ll face logistical hurdles.
As of this writing Friday, new coronavirus cases have been diagnosed at a rate of more than 125,000 per day through November, six times the level of June. The following chart depicts the grim situation:
Wall Street is nervous that the resurgent pandemic will cobber the economy all over again. We’ll eventually get a coronavirus relief bill, but as I’ve consistently warned you, stimulus won’t come until 2021.
It’s fantasy to think a vaccine will vanquish the virus, like a silver bullet, before the end of 2020. Likewise, it’s ludicrous to expect the Republicans and Democrats to suddenly start singing kumbaya during the bitter denouement of Trump’s presidency. Forget stimulus, until next year.
The Trump White House, preoccupied with fruitless attempts to challenge the election, has bowed out of stimulus negotiations. At the same time, Congress remains mired in stalemate. House and Senate negotiators wrangled over competing versions of relief legislation yesterday, with little hope of compromise.
Regardless, I’m convinced that conditions are in place for a new secular bull market in 2021. The trick is to survive the next few months.
Bullish factors for next year include the return of political stability; accelerating adoption of innovative digital technologies; greater infrastructure spending; de-escalating trade tensions; rising consumption among middle classes in emerging markets; loose monetary policies; and the (eventual) containment of COVID-19. A smart strategy now would be to dip your toes into these sectors, with stop loss orders, so you can participate in the market’s upward swing next year.
The appeal of commodities…
I’m long-term bullish on essential commodities, such as copper, iron ore, zinc, “rare earth” minerals, and silver. The world is poised to launch a massive building boom in 2021, in developed and developing countries alike. This activity will benefit construction-related companies and also drive demand for commodities.
Commodities prices are on the cusp of a rally, when demand starts to outstrip supply. Commodities not only afford growth opportunities but also hedge against inflation, which could rise in 2021 due to faster economic growth and unprecedented monetary stimulus.
There’s enthusiasm these days for gold, which makes sense. The yellow metal is a traditional safe haven during times of crisis. For the best gold play now, click here for our special report.
Silver is worth considering now as well. Both gold and silver are used in industrial processes and consumer products, but silver is far more crucial.
First, though, we have to get through what’s shaping up to be a rough winter. As the virus spreads exponentially this holiday season, consumers might curb retail spending.
A new survey released this week reveals that one third of U.S. shoppers plan to spend less this season than they did in 2019, due to the pandemic. That’s bad news. Consumer spending accounts for about 70% of U.S. gross domestic product, and about three-fourths of consumer spending occurs during the holidays.
Unemployment has lessened but remains highly elevated. The lack of new government assistance spells hardship for millions of unemployed Americans until the Biden administration and a new Congress take power in late January.
Investment action to take now…
The first quarter of 2021 seems like a long time to wait. If you’re looking for a reliable source of income that’s immune to the pandemic right now, turn to my colleague Amber Hestla.
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This program is like “income insurance” for actors who are out-of-work and no longer being paid to act. While the pandemic threatens the economy and financial markets, there’s actually a backdoor that you can access, to tap this program for cash. Don’t worry; Amber’s strategy is completely legit. Want your piece of the program? Click here for details.