Well look at that, it has been about a year since we began blogging consistently. The past 12 months have been, to say the least, abnormal for the stock market. We’ve seen violent swings and irrationality in both directions (up and down). We hope that through reading our blogs, that you have gained some insight or at least remained calm through the midst of the volatility.
In our latest blog, we mentioned that the S & P 500 might run into some brief resistance around the 50 day moving average (at that time 2882). We saw some consolidation at that level when the market backed up 4.8% in 2.5 trading sessions from April 17th-April 21st. However, with surprising resilience the index only paused there before regaining the upward trend from the March lows. Most recent the S & P 500 is up 33.75% off of the March lows and is now approaching its 200 day moving average. This moving average historically has been an inflection point for the index, especially when approaching it from underneath like it currently is set up. Currently that average is 3001.
Given we are about one week into the Phase 1 re-opening process, markets nearing technical resistance, and the drastic recovery in the indices pricing we would be extremely cautious adding to portfolios in terms of increasing equity exposure. Risk to reward at this time feels like the risk outweighs the potential for reward.
During times when we feel like the market isn’t priced for buying up shares of equities, we tend to spend our hours researching companies for future consideration. One thing is certain after this pandemic ends, we will have a new playing field for companies to either succeed or struggle through post Covid-19. Perhaps some small level of ‘new normal’ will exist in society, so we are looking for industries and companies who are positioned to take advantage of these trends. One trend we believe is going to thrive, and help change the economic landscape is 5G infrastructure for increased broadband speeds. Companies with products and services that take advantage the 5G future seem like smart choices at the moment. With more and more employees working remotely utilizing extreme levels of bandwidth, applications, online encryptions/security, and information system tools we think this industry is prime.
Other trends of note, increase in video game hours/esports league expansion, online shopping, mobile delivery systems, online payment processing, and streaming video all have a stickiness associated with them for consumers. in an economy that was fueled by the consumer of the past decade, it will be interesting to see what trends add to the economy into the next decade.
We hope that everyone had a great Mother’s Day weekend and is enjoying their spring through the midst of social distancing!