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Hopefully, So Far, For Now
The economic recovery is set to continue "for now", SocGen wrote Sunday evening, in a short preview of the week ahead.
"For now" about sums it up. Not so long ago, the reopening push in the US was going along just fine. The data had inflected for the better, investors were more than willing to accept PMIs at face value, and COVID-19 cases appeared reasonably stable. Equities staged the most dramatic 50-day surge in history and the Nasdaq touched new record highs.
And then, cases began to mount
I travelled for business in Mississippi and Louisiana this past week and the majority of people did not have a mask on. So much for facing the truth of COVID-19.
I am expecting another round of downward earnings revisions. If this doesn’t happen prior to Q2 reporting we have an opportunity to short the market’s biggest winners: FB (might already be taken out), Microsoft, Apple, Amazon, Alphabet and Netflix. With visibility be so opaque, expectations are like likely off. Having worked in corp finance for Tech, I learned that higher usage does not necessarily lead to higher profits in the short term. It usually leads to squeezed margins. Higher volume/revenue will likely not be sufficient to offset the lower margins and meet expectations.
Realistically, revisions will happen when the companies report.