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U.S. stock markets might be ‘on fire’ as earnings season begins – but
Wall Street has not priced in a second wave of coronavirus, warns the
CEO of one of the world’s largest independent financial advisory
organisations.
The warning from deVere Group’s chief executive Nigel Green comes as the
S&P 500 gained over 2 per cent in early trading, following gains in
European and the Asia-Pacific markets.
Mr Green notes: “This week, with earnings season underway, we are going
to see just the beginning of how corporate America and Europe have been
hit by the coronavirus pandemic. The results are likely to be dismal and
forecasts for the rest of the year can be expected to be revised down.
“However, investors are overlooking this. Instead, they are clinging on
to relatively positive economic news from China, hints that some major
lockdowns in Europe and elsewhere are being eased, and that confirmed
cases are falling -meaning economic activity can be revived.”
He continues: “It’s truly astonishing that as global economic growth
forecasts are looking bleak and most countries are battling potentially
one of the worst downturns in a generation, the markets are on fire and
trading as though these are normal times.
“They are not normal times. We are in unchartered waters. This isn’t the
time to be complacent as I doubt the bear market is over. We shouldn’t
call the bottom yet.
“It would appear that the financial markets are oblivious to the obvious
and serious financial threat of a potential second wave of the
coronavirus. Alarmingly, this does not seem to have been priced in.”
Mr Green goes on to add: “The markets’ bullish sentiment during this
mass disruption and dislocation would be baffling enough, but there are
also other headwinds on the horizon.”
These, he notes, include the U.S. Presidential election, the threat of a
no-deal Brexit, and the longer-term inflation risks.
The deVere CEO observes: “We can expect markets to remain volatile in
the short-term.
“Many savvy investors will be riding the wave of volatility to build up
their portfolios through lower entry points and seeking value and decent
returns in order to grow their wealth. Why? Because history teaches us
that over the longer-term the performance of stock markets is fairly
predictable: they go up.”
Nigel Green concludes: “The markets are growing more positive about the
Covid-19 crisis.
“But to sidestep taking a potentially massive hit, investors must avoid
complacency and emotional decisions through solid financial strategies.”