The SPDR S&P 500 ETF Trust (NYSE: SPY) fell last week in the face of growing investor concern about the potential economic fallout from a resurgence in COVID-19 infections.
On Thursday, the Labor Department reported that another 1.48 million Americans filed for unemployment, exceeding economist estimates of 1.35 million. The weak economic data came a day after the U.S. reported a record number of new coronavirus infections.
Several analysts and experts weighed in on what the sell-off means and how investors should react.
Economic, Political Uncertainty
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the market is reacting to COVID-19, new polling showing Democrats gaining momentum ahead of the U.S. election in November and the threat of new tariffs on European goods.
“We’ve continued to be cautious on the re-opening, arguing that the market is already pricing in a lot of good news – both in technology stocks, which are likely to have more resilient earnings than those cyclical stocks in the consumer discretionary and energy sectors, but have higher than average valuations as well as in the more speculative portion of the market which was betting on a return to normal without any setbacks due to the virus hampering the re-opening,” Zaccarelli said.
Charlie Ripley, senior investment strategist for Allianz Investment Management, said that as bad as Thursday’s jobs number was, the numbers are still trending in the right direction.
“Albeit slow, the marginal improvement in the labor market is a positive sign we’re on the road to recovery, but the increasing claims states where virus cases are up proves there will be bumps along the way,” Ripley said.
More Volatility Ahead
Investors should be prepared for more near-term market volatility, said Andrew Smith, chief investment strategist at Delos Capital Advisors,.
“With the unprecedented liquidity support from the Federal Reserve, an increase in positive earnings momentum and an acceleration in economic activity, we believe the current volatility is symbolic of a regime change from a slowing business cycle to a renewed business cycle,” Smith said.
DataTrek Research co-founder Nicholas Colas said the S&P 500 is still closely mirroring its trading action following the March 2009 lows, and investors should expect choppy, sideways trading for another 25 days or so if the pattern holds.
“The bottom line is that during this period in 2009 it was very tempting to see this volatility as a sign stocks were about to roll over again. But they did not.”
Sometimes the most difficult thing for an investor to do is absolutely nothing. Last week’s sell-off may seem scary, but the S&P 500 is still trading within 6% of its June high and above both its 50-day and 200-day simple moving averages.
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