Last week, we warned that stock markets were ignoring the second wave of the virus: this week, investors have paused to digest some alarming trends across states in the South and West of the US.
Investors in China were throwing caution to the wind too, until the Chinese Securities Journal provided a timely reminder: the economic data out of China has been encouraging, but previous stampedes into the market have in the past been followed by some sharp, painful reverses.
China does have one critical advantage: it has managed Covid-19 with aplomb compared with the US. Swift, chaotic ends to the lockdown have triggered a surge in infections in Texas, California, Florida, Arizona and Georgia.
The US is not alone: worldwide, daily new infections soared to 236,918 yesterday, an increase of 32.8% over the past week. New infections hit a record in Mexico yesterday. This is hitting the supply chain for US manufacturers such as Ford.
However, the surge in new Covid-19 infections has reinforced the appeal of high tech stocks in the US too. Year-to-date, the FAANGS are now up 36.4%. The Philly SOX index hit a new high last week (up 11.9% year-to-date).
There is some rational for the increase in valuations. Covid-19 is forcing through changes that will improve business efficiency. Some of the required adjustments will impose huge short-term costs on businesses. But the stock market is focussed on the long run.
Summary
• Covid-19 infections hit new high, in the US and overseas
• FAANGs still going up though
• Secular bull market for chips too
