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Date : 22 March 2021
FAST FOWARD & FED'S PUSH
The continuing strength of the stock
market even as the coronavirus pandemic batters the US economy has
baffled many observers. The Dow Jones Industrial Index (DJI) fell some
30% in the first three weeks of March 2020 as COVID-19 began spreading
rapidly globally, but it has since gained nearly 60% to current levels
above 28,650. Meanwhile, the U.S. economy shrank 31.7% in the April-June
quarter. Now after Trump lose his Presidential Election 2020. The Dow
Jones Industrial Index keep rising 40.5% and hit highest levels
33,227.78.
The first, which is true of all times,
the stock market is meant to be forward-looking. In general, the stock
market is a bit different from the economy, in the sense that what you
see right now in the economy is what is going on right now such as
production, employment and so forth. Even in “normal times" stock prices
and economic output would not move in tandem. In fact, may have
situations where the stock prices may predict something that is going to
be different from what we see right now.
Secondly, the Federal Reserve has put a
lot of money into the market, and that certainly helps keep prices up,
maybe above what we would expect without this intervention.
The fact that the Fed started injecting
all this money into the market pushed prices up. The prices of assets
are mechanically pushed up by the Fed’s act of purchasing them. That
causes prices for other assets also to rise because investors are always
looking for places to put their money.
RECOVERY ECONOMY 2021
The pace of the economic recovery in the
US in 2021 hinges on the pace of COVID-19 vaccinations. It projects
that doubling the number of vaccine doses administered daily to 3
million would create more than 2 million jobs and boost real GDP by
about 1% over the summer of 2021, with smaller effects later in the
year. Since the first vaccine dose was administered on December 14,
around 50 million Americans have been at least partly vaccinated, it
estimated.
At the current pace of around 1.5
million doses per day, we can expects economic recovery to continue but
proceed gradually through the middle of year, with employment rising to
nearly 152 million in July and four-quarter real GDP growth of around 5%
in the third quarter. Averaging over the full year of 2021.
By the end of the 2021, about 80% of the
population will have immunity to COVID-19, either from vaccination or
from having been previously infected. Vaccinations alone would have
covered between 50% and 60% of the population in that time frame. So no
matter what, we are looking at a substantial improvement relative to
where we were last year, and there is just not going to be as much scope
for the virus to spread going forward, even in the relatively
pessimistic scenarios.
"The vaccine is truly incredible. It is the best kind of stimulus we could want" - Kim
Much of that is contingent on people
feeling comfortable in getting vaccinated. One factor that we don’t deal
with explicitly is that people have to believe in the vaccine. Even
though there is a fair amount of skepticism right now, I think that once
people see it, that they are going to realize what a wonderful thing it
actually is.
I am expecting very rapid growth in the
economy in the second and third quarters of this year. No matter what,
we are headed towards a substantial recovery, but as we show just
exactly how sharp that recovery looks is going to depend on how quickly
we can ramp up the vaccination delivery.
Boosted by the global vaccine rollout,
gradual reopenings and US government stimulus, can be expects global GDP
to grow by 5.6 percent this year, and continue the recovery with 4.0
percent growth in 2022. A high degree of uncertainty remains, however,
as new virus mutations could spark another wave of infections during the
vaccination campaign or even prove resistant to the vaccines currently
deployed.
As the following chart shows, it can be
expects global economic output to return to pre-pandemic, example Q4
2019 levels in the first half of this year, with the further growth
trajectory depending on the speed of the vaccine rollout among other
factors. The top policy priority is to ensure that all resources
necessary are used to produce and fully deploy vaccinations as quickly
as possible throughout the world, by adding that the resources required
to provide vaccines to lower income countries are small compared with
the gains from a stronger and faster global economic recovery.
BONDS AFFECT THE STOCK MARKET
Bonds affect the stock market by
competing with stocks for investors' dollars. Bonds are safer than
stocks, but they offer a lower return. As a result, when stocks go up in
value, bonds go down.
Stocks do well when the economy is
booming. When consumers are making more purchases, companies receive
higher earnings thanks to higher demand and investors feel confident.
One of the best ways to beat inflation is to sell bonds and buy stocks
when the economy is doing well. When the economy slows, consumers buy
less, corporate profits fall, and stock prices decline. That is when
investors prefer the regular interest payments guaranteed by bonds.
The Federal Reserve controls interest
rates through its open market operations. When the Fed wants interest
rates to fall, it buys US Treasurys. That is the same as increasing
demand for the nation's bonds, which makes their values rise. As with
all bonds, when the value rises, interest rates fall.
Lower interest rates put upward pressure on stock prices for two reasons. First,
bond buyers receive a lower interest rate and less return on their
investments. It forces them to consider buying higher risk stocks to get
a better return.
Second, lower
interest rates make borrowing less expensive. It helps companies who
want to expand. It assists homebuyers to afford larger houses. It also
helps consumers who desire cars, furniture, and more education. As a
result, low interest rates boost economic growth. They lead to higher
corporate earnings and higher stock prices.
So what happening now, more rising
bond yields more chance investor buy beaten tech stocks. As long no
continous fiscal stimulus, risk of outbreak inflation is low. Is it now
"Correction phase"? I dont say its correction, it hit by bond yields
actually. So by rising yields and the prospect of inflation hurts growth
stocks like tech companies. It's growth stocks companies because they
reduce the value of profits promised to far out in future, compare to
others part in market.
MY FIVE (5) STOCKS FOR TIME-FRAME 1-3 MONTHS
FYI, I have 10 stocks list for 2021 for invest. Herewith part of them (5) which you can see as below with my Target Price and another Five (5) will release soon :-
1. AEON
2. UCHITEC
3. ASTINO
4. JAYCORP
5. YILAI
NOTE
: # My 5 Gems coming soon at another blog. So I will release total of
my 10 Gems together and more details. By the way, more info will be
release earlier in KGT.
MY KEYNOTE FOR CURRENT MARKET
- Investors should be cautious and vigilant when it comes to pursuing growth stocks such as technology counters.
- The rotational play is still ongoing in the market. Is it Recovery stocks in a limelight or others
- Buy when there is consolidation or collection. That would be the best strategy, provided you still believe in the stock.
- Technology counters are previously overvalued given that some of them are trading at 100 times P/E ratio. But now, it's looking soften and good from my view. As long as Bond yields can maintain below 1.70% levels. The worst is coming, if it touch 2.00% and above.
- It all depends on the specific company. Some companies have seen a many fold earnings growth among the tech companies.
- Regarding Malaysia Digital Economy Blueprint and upcoming 5G roll-out was announced, there was some buying interest in telecommunications stocks. Announcements have always been easy to make, while implementation has always been the toughest part.
- In terms of recovery play sectors, the energy, plantation, financial services, technology, transportation and logistics, as well as utilities sectors are set to continue their recovery in 2021.
- The construction sector and property sector in the research houses view are not expected to post a recovery at this juncture. In terms of strategies that retail investors should look at in 2021.
- The rotational play is still very much ongoing at a high velocity but also noted that recovery play strategies had emerged and that many retail investors are still in short-term mode at the moment.
- So that for those that are trading at 100 times P/E, there is always a reason for it. Regarding about P/E, my comments is below.
- A stocks P/E ratio doesn't indicate whether a stock is good or bad. It only indicates the stocks price in relation to its earnings. A stock with a lower P/E ratio is typically regarded as being cheaper than a stock with a higher P/E ratio.
- Stocks with a low P/E ratio may be underpriced in the short term. But if investors spy a bargain and buy these stocks, the purchase activity can drive up the price of the stock. When it does, the investors who bought low make their profit. This is why stocks with a low P/E ratio are often called "value stocks."
- A higher P/E suggests high expectations for future growth, perhaps because the company is small or is an a rapidly expanding market. For others, a low P/E is preferred, since it suggests expectations are not too high and the company is more likely to outperform earnings forecasts.
- For me, there is no bad or good about high and low P/E ratio. Depending on your view of the market, expensive is not necessarily bad. i.e Tesla, its at high earnings. Why? because people are happy to pay more for earnings if they think the stock price is going to continue climbing.
- Investors should look beyond this year and consider 2022 earnings to get a more accurate view of the market’s valuation. The market can look through this recession and say, 'I’m going to put a multiple on the more normalized earnings we’ll see in the next few years'. If earnings do get back to last year’s levels, then a valuation of between 18 and 20 times may be more reasonable. But that's still not cheap, but its at least closer to historical norms.
- The one problem is that it may be difficult to determine what kind of earnings the market, or a company will have post-pandemic. Some businesses will rebound, some may post higher earnings and others will have trouble getting back to where they were. Investors can look at how a company fared during the last recession, or how well they were doing before COVID-19, to decide what sort of earnings they may have in a year or two or more, but not knowing what is to come will make it difficult for investors to figure out whether the market, or the company they are interested in, is cheap or expensive right now.
- By saying that, cyclical stocks look better from a valuation perspective than defensive stocks, which are typically more value oriented. In a recession, investors scoop up defensives, like grocery stores and other consumer staples, pushing their valuations higher. Cyclical companies, where fortunes can rise and fall based on the economic environment, tend to get hit hard, but then rebound during the recovery like I have foreseen now due to worldwide vaccines roll-out by phases. We have seen some cyclicals come back, but not much as people are still concerned about the outlook for the economy.
- We will see that rotation, and it happening now. Like everything in this pandemic, nothing makes a lot of sense, so if you think something is odd, like high market valuations, then dig a little deeper to find out more about what is going on. You never want to base an investment decision only on P/E, but that is especially true today. I still on valuation through P/E, so that is why I took 10's stocks for my porfolio's 2021.
INCOMING BLOGS
1. My 10 stocks you should own in 2021.
2. Glove stocks to buy, to sell or to hold?
Coming soon =)
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LETS JOIN KIM'S STOCKWATCH GROUP?
Official Telegram : https://www.telegram.me/kimstock
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Best Regards,
KIM
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