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Forward-Looking Market Eyes COVID Developments Heading into Q3

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After posting its best quarter in decades, rebounding sharply off March lows, the market moves into the second half of the year amid swelling IPO momentum and with sustained confidence in the tech sector, which continues to outperform. Yet, the market continues to monitor each COVID-19 development, from treatment and vaccines to testing and reopenings, taking a forward-looking approach in determining how the rise in coronavirus cases could impact recovery efforts.

“We really had a V-shaped recovery in the market, without having a V-shaped recovery in the economy yet,” Mike Sokoll, CFA, associate vice president on the Market Intelligence Team at Nasdaq, said during a recent LinkedIn Live with SoFi, in which he discussed market trends, sector performance and IPOs.

The Nasdaq Composite gained nearly 30% during the last quarter, representing its best quarter since 1999. Meanwhile, the Dow Jones Industrial Average and the S&P 500 rose almost 18% and 20%, respectively. The tech sector, most notably work-from-home stocks, such as Zoom (ZM) and Peloton (PTON), have done exceptionally well during the pandemic, along with biotech.

“I have a hard time betting against the tech sector, it’s just done so well and is a market leader,” said Sokoll.

While first-time unemployment claims surged as thousands of small businesses closed during the second quarter, the market seems to have largely brushed off the economic data, instead taking a forward-looking approach that anticipates that businesses will be in a better position by year-end, according to Sokoll.

“The market is paying attention to the reopening of states, COVID virus and other countries opening up, and not necessarily looking at backward-looking data,” such as unemployment claims, said Sokoll.

“Second-half corporate earnings are going to be what eventually supports the markets,” Sokoll continued.

Amid a stabilized VIX and as states reopen, IPO momentum has accelerated. While social distancing measures prompted the switch to virtual roadshows, companies continued to tap the public market. In the first half of the year, Nasdaq welcomed 69 IPOs, raising a total of $17.4 billion.

“We’re hopeful that volatility can be suppressed and with the market generally up that we’ll see more deals,” said Sokoll.

Listen to the full conversation.

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