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Until a vaccine is fully tested and deemed safe, market direction will be guided by data releases, and increasingly by corporate guidance.

July 01, 2020

Highlights:

  • Headlines are increasingly focused on the surge in cases, and whether some states need to place a “pause” on the pace of their reopenings.
  • Markets are favoring the rebound trade as data globally continue, for the most part, to surprise to the upside.
  • Until a vaccine is fully tested and deemed safe, market direction will be guided by data releases, and increasingly by corporate guidance.

As we head into the summer months and take to the roads, enjoying the opening of the economy, clearer skies and warmer temperatures, economic data releases are also enjoying the air of a rebound. Looking at pictures from across the country, beaches and bars are coming back to a life reminiscent of the carefree days of just a year ago. Airports, however, so far tell another story. It’s the story that hovers over us day in and day out, as headlines post the daily COVID-19 case, hospitalization and death counts. And the headlines are becoming increasingly focused on the surge in cases, and whether some states need to place a “pause” on the pace of their respective reopenings. Already, the long-awaited opening of Disneyland and Disney California Adventure has been postponed without a new date as yet announced. Apple has been re-closing stores in parts of the country because of the spike in virus rates. In a coordinated effort, the tri-state area of New York, New Jersey and Connecticut has issued a “travel advisory” to visitors from other states that a 14-day quarantine will be required upon arrival. New York Governor Andrew Cuomo said, “We also have to make sure the virus doesn’t come on a plane again.”

Still, despite mounting, if not stretched valuations, markets are favoring the rebound trade as data globally continue, for the most part, to surprise to the upside. Unprecedented global monetary and fiscal stimuli have underpinned market performance since the March 23 low, as the expansion in money supply becomes a key factor in assessing market trajectories and valuations. With Apple making a new high following its annual developer conference, along with the Nasdaq Composite reaching a fresh intraday high at the end of June, the trading and investing community similarly remains concentrated on the broad range of technology names that buttress the digital world we increasingly live in. But as sophisticated and esoterically complicated as that world may be, names in the so-called “soup and cereal” world have also been popular, as if acknowledging that maybe, just maybe, we will have to spend even more time indoors.

June witnessed a couple of jittery bouts of selling as markets dealt with pandemic-related concerns that the economic recovery, while clearly making progress, could suffer a meaningful setback if COVID-19 isn’t contained.

The second-quarter earnings season officially begins in mid-July, and Refinitiv, a leading financial market data firm, is projecting a 43% drop in earnings. Those results will provide information that will ultimately be crucial for markets. And we will see whether corporate CEOs and CFOs are prepared to offer guidance in an environment still enveloped in uncertainty.

At the core, however, it is about the economic recovery. It is about feeling safe again, and having consumers participate fully in economic activity. If there are any catalysts that can have a cautious market shift gears quickly, they are announcements regarding progress toward a vaccine. Those are market moving, as they should be. The Fed can provide trillions of dollars of liquidity, and the government can offer as many relief packages as it wants, but the virus hovers over us and weaves itself into every aspect of our work and personal lives. Until a vaccine is fully tested and deemed safe, market direction will be guided by data releases, and increasingly by corporate guidance.

Read Quincy Krosby’s full July 2020 market commentary, “Shifting Gears" PDF (517 KB).

The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This document has been prepared solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The Prudential Insurance Company of America, Newark, NJ, and its affiliates. Prudential and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. In providing these materials, the issuing companies and distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations.

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Lisa M. Bennett

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