Our expert gives his view on prospects for US stocks and how they have fared during the pandemic.
With the US earnings season underway, the question on many investors’ minds will be how some of the most popular companies on the other side of the Atlantic fared during the onset of the Covid-19 pandemic.
Coronavirus hasn’t diminished the allure of US tech conglomerates, with a number of stocks swiftly rebounding after the coronavirus linked sell off – most notably Amazon (NASDAQ:AMZN), which blew past a $1trillion valuation this month.
Technology was a popular theme among interactive investor customers in March, accounting for 7 out of the 10 most bought US stocks on the platform (Tesla (NASDAQ:TSLA) included, in first place).
Some of March’s most popular stocks reflected our new ‘lockdown lives’ – with Zoom Video Communications (NASDAQ:ZM) making the top ten for the first time in 2020 (with Uber (NYSE:UBER)out), alongside Disney (NYSE:DIS), which also launched its Disney+ service in the UK in March, and Amazon. Plenty of investors have also turned to the ‘Sage of Omaha’ in these turbulent times – Berkshire Hathaway (NYSE:BRK.B) was the tenth most traded US stock on interactive investor in March (see table below).
Away from technology, the general consensus is that company earnings for Q1 2020 more broadly are going to be ugly. Richard Hunter, Head of Markets, interactive investor, gives his views on the prospects for US stocks.
“The first quarter of 2020 had, to some extent, been building on the market success of 2019 until the outbreak of coronavirus gained traction globally.
"This week’s fall in the price of oil futures to below zero for the first time ever, owing to a combination of oversupply, a collapse in global demand due to the Covid-19 lockdown, and a quickly evaporating amount of physical storage space, reflects what has truly been an unprecedented period for global markets.
"But despite concerns over the global economy, the stock market has rallied from the 23 March lows, as investors anticipate an end to the crisis and a return to some kind of economic normality.
"That being said, even after a multi-trillion dollar stimulus package involving both monetary and fiscal boosts – with more expected to come - the Dow Jones Industrial Average is still down 19% in the year to date (21 April), the S&P500 has lost 14% and the previously all-firing Nasdaq 100 has shown some recent strength to have given up just 6%.
"As such, the first quarter reporting season is likely to make ugly reading on the whole and, as things currently stand, this will not only be mirrored in the second quarter but will almost certainly be accompanied by a global recession.
"A strong canary in the coal mine came from JP Morgan Chase, who opened the first quarter reporting season in the US. First-quarter profit tumbled 69%, but of equal importance was that the bank set aside a huge $6.8 billion to cover potential losses to businesses and consumers who were struggling to stay afloat given the economic impact of the coronavirus shutdown.
"In addition, its largest corporate clients drew down billions of dollars on credit lines and sought billions more in new debt. This was quite apart from the issues which banks globally had already been facing, such as the prospect of lower margins, given the historically low interest rate environment.
"Similar themes subsequently emerged from others within the sector, such as Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS)."
Winners and losers - some US stocks to watch
In the absence of any meaningful outlook statements from companies during the season, what has the market made of the effects of the Covid-19 outbreak?
A scan of the biggest winners and losers from the S&P 500 in the year to date provides an excellent summary of what we have already heard, as well as some of the themes we are likely to continue hearing.
Citrix Systems are up 36% in the year to date and have become known as one of the “work from home” stocks, since they not only enable solutions for the workplace, but also facilitate home-working even without the need for office laptops to be brought home.
Regeneron Pharmaceuticals, ahead by 51% so far this year, are emblematic of the current race to quell the spread and then recurrence of the coronavirus. For its part, Regeneron has found an existing arthritis drug which could potentially be used as a Covid-19 treatment.
Then there is the question of downtime at home following what has become something of a global lockdown. It is perhaps not surprising that Netflix has managed to post a gain of 35% in the year to date.
The losers mirror the most obviously affected sectors following the outbreak.
Staying within the S&P500, real estate company Macerich (NYSE:MAC) has plunged 77% in the face of a potentially skewered property market.
Royal Caribbean Cruises (NYSE:RCL) has also lost 73% in the year to date, as the tourism and travel sector has succumbed to the closure of many country borders and the unwillingness or inability of tourists to travel.
In terms of the problems in the energy market, Apache Oil and Gas (NYSE:APA) has seen a plunge of 67% in its share price in just three months.
Richard Hunter adds: “Poor earnings and a lack of visibility will be key features of the reporting season to come, but as time goes on the six stocks above could prove to be a microcosm of the wider issues facing investors, if not yet in actual monetary terms then at least in helping to identify where recession – and recovery – could hit hardest.
Quite apart from these likely woeful Q1 numbers, an additional issue is that it is difficult to see a prolonged improvement in sentiment until there has been a sustained plateau of cases followed by a reduction in the US, let alone a vaccine which would ultimately put the issue to bed.”
Top 10 most-bought US stock on interactive investor in March 2020 (in rank order)
|AMAZON COM INC|
|ZOOM VIDEO COMMUNICATIONS|
|WALT DISNEY CO.|
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.