A strong week for equities saw the S&P 500 climb 3.2% to a close of 2955. The S&P 500 has retraced 62.5% of the losses sustained between February 19th and March 23rd. Nearly all US states are at various stages of re-opening. However, a full recovery remains elusive despite the Federal Reserve’s largesse: clawing above the two-thirds retracement line (3,003) will be a test. Emerging markets are starting to cause real concern. Brazil and Russia occupy second and third place in the world tally for Covid-19 (total cases).
The narrow leadership of the US stock market rally is causing concern in some quarters too. This morning’s news that Hertz has filed for receivership underlines the big risks facing the ‘old economy’. Even with a recovery led by digitalisation, with more and more consumer services delivered online, there will be numerous casualties testing the resilience of the banks.
There are positives, however. Better housing data has propelled the real estate up including a 2.2% rise on Friday (5.6% for the week). The NAHB survey offered a modicum of light, with the index for sales in the next six months up ten point to 46 last week (for May).
And the rally in equities is not simply the charge of big, over-hyped tech giants. Within the IT index, 49 out of 71 companies have risen this month. There have been some big winners. Facebook was up 1.4% again on Friday, extending last week’s rise to 11.4%. Mr Zuckerberg has talked of a distributed, remote workforce that will “open up a lot of new talent that previously wouldn’t have considered moving to a big city.”
But many of these tech giants are were at the forefront of the ‘new economy’ before Covid 19 struck. They are even more relevant now. The top three performers this month include Fortinet (+33.6%, ‘high-performance, integration network security solutions’), Nvidia (+23.5%, graphics processing chips) and Paypal (+22.7%, online payment systems). “Work from home, learn at home, and gaming” had driven strong demand Nvidia reported last week.
Summary
• EM a risk, but US housing compensates for now
• Tech rally is broad-based
• WFH powers Nvidia
