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Fear of second wave and risk of lockdown

On June 10th, the Fed announced to make benchmark interest rates close to zero and continue to pour billions of dollars in stimulus.

The Fed’s goal is maximum employment and price stability. However, the speed of the employment recovery is questionable.

Tens of millions of unemployed people won't get their jobs back overnight. By the end of 2022, the Fed predicted unemployment rate would drop to 5.5%, which is still well above the rate before Covid-19 started.

The decline in the bottom-up EPS estimate recorded during the first two months of the second quarter was larger than the five-year average, the 10-year average, and the 15-year average.

Investors have to be very careful here from now. The market reacted with very mixed results.

$SPX500 closed lower but $NSDQ100 was driven by FAANG stocks, but underneath, there are many stocks performing poor.

It's in cyclical, it’s in financial. As we see more of the opening of the economy, I think the opportunity for the oversold stocks over the next six to 12 months is higher. But given how far we’ve come back, it's very likely to have a little bit of consolidation and then we go forward from here. Certain cash position allocation is necessary for the second wave concerns and dark Fed outlook.

During this special time, our view of practices/mindsets of investing money is as follows:

1. Stay patient and invested with cautious positions

Covid-19 accelerated adoption of tech firms' solutions and products in businesses/communities.

Cyclical sector is discounted badly as of now. However, in five years time, it could be in bargain price to catch golden eggs from great value stocks

2. Prepare for a potential drop to buy

The Fed responded to the recession extremely fast with massive stimulus tools, which helped out the market, not the fundamentals in corporate operation level. We might see the Q2 and Q3 earning calls disappointing to investors, which lead to 12~20% fallback.

Average retail investors shall not fight against the Fed by opening short for quick profits.

Risks of shorting the market do outweigh potential rewards, which is not worth doing repetitively.

Remember that from the March lows, the S&P 500 is up ~40%.

Warren Buffett

Stan Druckenmiller

David Tepper

Bill Ackman

Chamath Palihapitiya

Mark Cuban

Bill Miller

Paul Singer

Paul Tudor Jones

& more are bearish.

Trade/invest responsibly and respectfully.


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