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Super-V recovery or slow death?

By Marius-Cristian Frunza
Weekly Briefs

Second wave, vaccine, Super-V recovery, November crash, monetary stimulus… There are too many unknowns in the equation describing the market dynamics.  Different pieces of information invariably conflate, and reading the bigger picture seems an overwhelming task.
How should an individual investor act under such circumstances? Go all-in? Or maybe wait for a moment of clarity?

United States Manufacturing PMI, the leading index indicating the prevailing direction of economic trends in the manufacturing and service sectors, showed a strong recovery during the summer, boosting investors’ optimism. It gives hopes that the market rally may have some fundamentals and is not based on the money printing machine solely.

Meanwhile, the European countries are facing a second wave, and governments may need to announce another lockdown. The real issue is whether central banks will approve an extension of the financial stimuli or will let businesses dig their graves. Whilst the US is 100% focused on relaunching the economy, the EU seems to be more concerned about preserving people’s health. The vaccine appears the “Holy Grail” that could deliver both population and economy from a sure decline.

Figure. United States Manufacturing Purchasing Managers' Index (Source: Trading economics)

The time span between now and November will unveil counterintuitive market behaviours. Institutional traders will extract profits from by playing the big bet on event-driven strategies. Therefore, retail investors should act carefully, avoid following any short-term trend and assume only qualified risks.

He then alone will strictly be called brave who is fearless of a noble death, and of all such chances as come upon us with sudden death in their train. Aristotle

Market overview

S&P 500 is losing ground for the second week in a row. The leading US stock market contracted by 7% since the beginning of September. The US economic recovery started to slow in September. This contraction corroborated by the absence of any perspective of a financial stimulus puts more pressure on the sellers. These drivers impact the price signal of the stock market that does not show too many signs of resurgence. It would be righteous to say that leading index are already higher than they should be. But, we should bear in mind that any massive dip at this stage could generate a chain reaction with unpredictable results.

There is still a long way ahead before observing macro figure comparable to those before the pandemic. The way will be even longer before absorbing the losses of those sectors ineluctably destroyed by the new coronavirus, including catering, hostelry, and air travel.

TikTok:

Oracle takes the lead

TikTok became over the past months, one of the most popular applications, accounting for over 100 million users in the US. This growth came in the middle of a turf war between Beijing and Washington, and Trump administration used TikTok as a proxy for getting the upper hand.

Three major American giants including Microsoft, Oracle and Walmart, entered the race for providing bid to ByteDance, the company owning TikTok. Currently, Oracle seems to come on the top of the pile as it submitted earlier this week a partnership proposal to the Chinese company. Therefore, Oracle’s shares gained significant momentum.

Nevertheless, ByteDance still holds the option to opt for IPO or direct listing. The bets are on, and whoever will get the deal might get significant market traction.

Covid:

Novavax vs Moderna

Several biotech firms are favourites in the race for delivering a COVID vaccine and developed remedy which are in different stages with the FDA approval. Moderna emerged very early as a race leader. Therefore, its share price increased since the beginning of the year by over 230%. Meanwhile Novavax one of the most serious contenders saw its shares surging by over 2200%.

There are places for several vaccines, but it is clear that not all firms will be able to produce a viable product that could be appropriately commercialized. AstraZeneca stopping the clinical trials amid an unexpected event shows that many underlying issues could undermine the vaccine production.

The companies that will lose this race may need to provide explanations to disappointed investors. There are already short-seller researches pointing the finger at a few biotech firms that surfed the wave of hope-selling amid the pandemic outbreak. We could witness the crash of a number of stocks related to companies that will not be able to deliver. We would also observe another group of firms that will see their shares bolstering, thereby rivalling with pharma giants.

Market outlook

The Dow Jones climbed to 28,000, but did not find support and retreated towards 27,600. We should expect more market corrections as we approach the date of the presidential US elections. Nasdaq remained below 11,000 and there are no signals of resurgence, as the leading capitalisations of the index are in murky waters.

The Gold ounce found support above the 1,950 level and has a positive outlook in an environment where investors may stay away from stocks. In the short-term Gold ounce’s growth perspective are limited, but in the long run its price should find a stronger momentum.

Bitcoin’s price is testing the 11,000 resistance level, but the question is whether the leading cryptocurrency is able to attract new liquidity. The market sell could continue over the next week, and we may not see soon Bitcoin’s price above 11,000 USD.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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