What Walls of Worry?

Shah Gilani|November 11, 2020

It’s often said when equity markets rise in the face of negative news, economic worries, and other impediments to investor sentiment and earnings prospects, that the market’s climbing the “wall of worry.”

Newsflash! The market hasn’t just climbed a wall, it’s knocked down every wall in its path and isn’t worried about anything.

But that doesn’t mean everything’s coming up roses.

Global virus cases just topped 51.5 million. The infection rate in the U.S. is skyrocketing. Over 143,000 new infections were announced on Monday. The average daily rate of new infections in the U.S. in now north of 900,000 a day over the past 30 days.

As bad as that is, and it’s worse than investors realize, is that hospitalizations just hit a record 61,964 as of last night; that’s 2,024 more than the peak 59,940 hospitalizations in April.

How many of the newly infected millions of Americans are headed for hospitals remains to be seen, but doctors expect them to overwhelm healthcare systems faster than they’re prepared for.

Still, equity investors are all risk-on and damn the torpedoes.

Here’s what you need to know…

Risk-On, and On, and On

You can chalk up equity investors’ enthusiasm to three things:

1. The contested elections that could have created a nationwide crisis haven’t panned out that way. So far.
2. Earnings aren’t just beating analysts’ estimates; they’re blowing them away, which portends a solid Q4 and higher stock prices.
3. And there’s the 90% efficacy vaccine just announced by Pfizer Inc. (NYSE:PFE), and more coming on the horizon, that all points to a “re-opening” of the economy and the clarion call to get into cyclical stocks.

The risk-on move’s been monumental.

Not only has it come on huge volume on up-days, sometimes almost 50% more as in Monday’s move, which indicates institutions are coming off the sidelines, retail investors keep upping the ante bidding up beaten-down “re-opening” stocks and generating momentum as professionals have to follow in.

So far, so good, which is an understatement to be sure.

I expect to see more of the same, more retail investors chasing up cyclical stocks, more institutions coming off the sidelines and markets making new highs.

But some walls are reforming, and investors need to keep an eye on them.

What to Do Now

Tech stocks are being sold, sometimes hard and fast, partly because analysts say investors are taking profits, lightening their exposure to big winners, and plowing money into the cyclicals as part of the rotation trade.

The truth, however, is more disconcerting.

Antitrust battles, anticompetitive claims, privacy issues, and political pressures are what’s wearing the mega-cap tech stocks down.

The E.U.’s now going after Amazon.com Inc. (NasdaqGS:AMZN). A Biden administration is said to be hostile to big tech, especially Facebook Inc. (NasdaqGS:FB) and others for a multitude of sins. That’s worrisome if it results in a lot more tech-selling.

It’s worrisome because big tech just led the markets higher going into the election and right after it.

The rush into cyclicals, which has been building, is all well and good, just as long as mass hospitalizations and rising mortality rates don’t shut down the economy again and the vaccine “candidates” don’t start producing side-effects or face other issues, like distribution or trust and adoption.

So, what should investors do?

Go with the flow.

Dips are still buying opportunities. The bigger the dips the bigger the buying opportunity.

And one of the best guides in this time is something called “Super Options.”

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But now, with everything that’s happened this year, S.C.A.N. has been redone, and it’s more supercharged than before.

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Andrew is debuting the brand-new model of his S.C.A.N. technology in a live webinar tomorrow, November 12. Keep an eye on your email, because you don’t want to be the one that missed out.

But just remember… be careful out there in the meantime.

Because it’s all good, until it isn’t.

Sincerely,

Shah