The stock market inches closer to a full recovery from the March bear market. Many also predict that the tech industry will get back on track. Also, more and more states have started to reopen their economies. Because of these, many investors are left wondering “what’s next?”
Jim Cramer, host of CNBC’s Mad Money says that many companies will continue with their work from home policies. This makes the tech industry crucial. He says this will likely happen until at least early June. Cramer also says the “Covid-era” tech companies that are mostly in the Nasdaq will do very well.
“A lot of the stocks in the Nasdaq are for companies that do better in a Covid era. Remember, we’ve got many, many institutions with 80% to 95% of people working at home, and they require a gigantic change in the supply chain of work and the supply chain of work has just generated a remarkable new wave of the cloud, of hardware, of software and the companies that are really rallying for the most part are companies that do fabulously when you have to create new factories and the factory is in the home.”
The Role of Tech Companies
Salvatore Ruscitti, U.S. equities strategist at MRB Partners, agrees with Cramer. He also thinks that the “work from home” era has made tech companies even more important to our daily lives.
“The COVID-19 pandemic has reinforced the essential role that technology plays for businesses and consumers,” Cramer said. He also said “that the recession could see many of the largest growth companies become even more dominant.”
Billionaire Paul Tudor Jones warns that the rebound from the March lows was easy to predict. However, he also says talks will shift from liquidity issues to solvency issues. Jones mentioned this will happen if we don’t find a vaccine soon so that businesses can reopen.
“I think this part — the bounce — was easy to forecast. I think what happens from here again depends a lot on Covid so there’ll be a shift in focus from liquidity issues somewhere down the line to solvency issues… If we don’t find a vaccine or a cure, if we don’t find a much better way of testing at scale for the population so that we can get back to work and we start seeing daily doses of bankruptcies and other insolvencies, then I think the market is going to have a much more difficult time.”
The State of the Markets
Mohamed El-Erian, chief economic advisor at Allianz, says that the markets will win. He believes this will happen, no matter how the reopening of the economy goes. If the economy can stand on its own two legs, the markets will rally. If the economy stumbles out of the gate, the markets win. It will happen because the Federal Reserve will step in with even more stimulus money.
“The key issue is that we are reopening — we are opening in a bumpy manner, and we’ve just got to keep focused but markets are completely divorced from this reality. Because markets have stumbled into a win-win. You win if the reopening goes well and you still win if it doesn’t go well because the Federal Reserve is in there in a big way. And I think that’s why markets are in one universe and the real economy is in the other and the real economy is going to get a lot worse. We already have two officials telling us that the unemployment rate is going to go north of 20%, and it is, unfortunately.”
Echoing El-Erian’s belief that markets are “completely divorced from reality” is Doug Ramsey, the chief investment officer of The Leuthold Group.
He says the day is coming when the true state of our nation’s economy catches up with stocks.
Ramsey says “The stock market punishment doesn’t fit the economic crime. We expect it eventually will.”
“The depth and duration of this economic calamity are unknowable, but values don’t yet reflect it. S&P 500 valuations are 30-40% higher than seen at even the comparatively-shallow market low of 2002.”
He expects at least a 32% drop from here based on historic metrics.
“If the median S&P 500 stock traded down to the average valuation seen at the last three bear market bottoms, it would have to decline another 46% from April 30th levels,” he said. “If we play along and assume that valuations bottom at the ‘richest’ levels ever seen at a bear market low, there’s still 32% downside remaining in the median S&P 500 stock.”