Is The Market Bear Just Taking A Nap?

With the stock market looking at one of its best single-month gains in years, some investors may be forgiven for thinking that the bull market is back

With nearly 40% of the S&P 500’s (NYSEARCA: VOO) companies reporting earnings this week, analysts’ have their work cut out for them. And Wednesday proved to be the busiest day of the lot, including the likes of Tesla (NASDAQ: TSLA), Microsoft (NASDAQ: MSFT), Spotify (NYSE: SPOT), and many more. 

Die-hard Wall Street enthusiasts would call this situation something like an ‘investors Christmas Day’, and I don’t disagree. However, for writers such as myself, it’s more akin to Christmas Day for parents, who must rush around, make sure everything is just right (reporting each earnings call in our case), get very little sleep, and just want it to end so they can get dinner and sleep. 

Yesterday certainly seemed this way, and things were made more crazy by the news that Gilead Sciences (NASDAQ: GILD) may have actually found a viable cure to the coronavirus pandemic which has ground our lives to a halt. It’s early days yet, but such news is certainly welcome. 

Stocks soared on the news, and the Dow (NYSEARCA: DIA) surged 2.2%, the Nasdaq (NASDAQ: NDAQ) jumped 3.6%, while the S&P 500 gained 2.7%. Wednesday’s gains put the S&P 500 up more than 13% for the month, and the Dow up 12.4% for April, marking their best months since 1974 and 1987 respectively.

Does that mean that we are back in a bull market? 

The bear might just be taking a nap…

Yes, we have experienced a strong month of growth, but this is off the back of an aggressive 30% decline in the month previous. Granted, the S&P is now down less than 1% year on year, and yesterday’s earnings were not quite the bloodbath we expected, but there’s a long way to go yet. 

This result should have been expected, as the majority of the U.S. and European economies did not shut up shop until mid-March, almost at the end of Q1. Q2 on the other hand will be a different story. Lockdowns are likely to continue throughout the whole quarter, and it is then that we can expect to see some terrifying numbers when they are reported. We’ve already seen Netflix (NASDAQ: NFLX), Apple (NASDAQ: AAPL), Microsoft, and so many more businesses admit that they have no idea what the next quarter will hold. 

It is likely that when things calm down following earnings season, and the reality of a world with limitations truly sets in, the market will react accordingly. 

Let’s be realistic…

For weeks now analysts have been warning that the economy is staring down the barrel of the worst recession since the Great Depression, and with close to 30 million unemployed in the U.S. alone, businesses continuing to remain closed, and death tolls still rising, it’s hard to see an end any time soon. Sure, we may have a vaccine, but the best estimates put that at being readily available by the end of the year at the earliest, which implies at least 7-8 months more of closures and bailouts. 

Can Disney (NYSE: DIS) afford to keep its biggest revenue stream in Parks, as well as cinemas, closed until then? How will Starbucks (NASDAQ: SBUX), McDonald’s (NYSE: MCD), Texas Roadhouse (NASDAQ: TXRH), or any of the millions of small businesses continue to provide barely a fraction of their normal service? And we haven’t even discussed the dangers facing the airline industry in the long-term. 

The full extent of the damage will likely become apparent by late summer, as companies reveal the costs of an entire business quarter in lockdown. 

It’s hard to see any sort of return to normality until a 100% safe and accessible vaccine is made available. Until then, this virus will continue to dominate the market, and short of having the mystical ability of foresight, none of us can say what the exit plan is. And even when things do get back to normal, it will be a ‘new normal’. The economy won’t just restart. We’ll be in a new world, probably dominated by the likes of Zoom (NASDAQ: ZM) and Slack (NYSE: WORK), with Jeff Bezos sitting in his Amazon (NASDAQ: AMZN) HQ, ruling us all…

Ok, it won’t be that bad, but we will need to rebuild. 

How to protect your portfolio

Luckily, a downturn is not the end of your investing life. You’ve got MyWallSt on hand to help you with this. By combining our market-beating list of stocks and our 6 Golden Rules, you too can survive even a recession, and possibly pick up some bargains along the way. 

Just check out our performance versus the S&P 500:

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.