Don’t celebrate the recent rise and recovery in stock prices just yet.
While the stock markets might be on fire as the earnings season begins, don’t break out the Cristal just yet. Wall Street has not priced in a second wave of coronavirus, warned deVere Group’s chief executive Nigel Green.
“This week, with earnings season underway, we are going to see just the beginning of how corporate America and Europe have been hit by the coronavirus pandemic. The results are likely to be dismal and forecasts for the rest of the year can be expected to be revised down,” Green began. “However, investors are overlooking this. Instead, they are clinging on to relatively positive economic news from China, hints that some major lockdowns in Europe and elsewhere are being eased, and that confirmed cases are falling –meaning economic activity can be revived.”
Green said that he was amazed that as global economic growth forecasts are looking bleak and most countries are battling potentially one of the worst downturns in a generation, the markets are on fire and trading as though these are “normal” times. He emphasized to Traders Magazine that these are not normal times – far from it.
“We are in unchartered waters,” he said. “This isn’t the time to be complacent as I doubt the bear market is over. We shouldn’t call the bottom yet.”
A few days of gains do not make a trend, as the old trading adage goes.
“The markets’ bullish sentiment during this mass disruption and dislocation would be baffling enough, but there are also other headwinds on the horizon,” Green said, noting the upcoming U.S. Presidential election, the threat of a no-deal Brexit, and the longer-term inflation risks.
He is expecting more short-term volatility.
“Many savvy investors will be riding the wave of volatility to build up their portfolios through lower entry points and seeking value and decent returns in order to grow their wealth,” Green said. “But to sidestep taking a potentially massive hit, investors must avoid complacency and emotional decisions through solid financial strategies.”