Amid growing fears of a coronavirus resurgence and increasing market volatility, markets are now pricing in a longer-term recovery while tech stocks remain well-positioned, according to Nasdaq Chief Economist Phil Mackintosh.
“It’s important for investors to keep in mind that the market’s job is to try and work out where we’re going to be in a year or two from now. A lot of the recovery that we saw over the last few weeks was because of the stimulus, the fact that people are getting back to work, and the fact that shops and restaurants are starting to reopen. So, there was a lot of confidence that we would get back to normal within a year,” Mackintosh said in a recent interview with Cheddar. “What has changed in the last week or so is some experts and serious economists have started to say it could take longer than that.”
As businesses begin to reopen and people protest in mass over social injustice, almost half of the U.S. states are reporting an increase in coronavirus cases. To date, there are more than 2.1 million cases and 116,726 deaths in the U.S., according to data from Johns Hopkins University. While the U.S. has the highest number of cases, they are also on the rise elsewhere in the world, most notably in China, which threatens the country’s slow economic recovery.
“There’s a lot of economic data out of China and other countries that show, especially for specific industries, that this could take a lot longer to get markets back to normal than potentially the markets themselves had started to price in,” Mackintosh said.
“When you look at the P/E ratio for the U.S. markets using this year’s earnings, it’s extremely expensive, it looks very frothy,” Mackintosh continued. “But when you look a year out, it starts to look relatively normally priced – not cheap – but you can start to see that investors, even sophisticated investors, might be looking at giving this year a washout, and looking forward at how we are when we return back to normal.”
While some investors might consider this year a wash as the timeline for a vaccine moves toward 2021, Mackintosh acknowledged that there is a record number of sign-ups and new accounts in retail investing.
“We have record-level of retail trading happening right now,” Mackintosh said. “It’s hard to tell from that data whether they are buying or selling, but it’s definitely a change in the market structure and retails seems to be quite active in this current market.”
Given the concerns of a second wave of the novel coronavirus, Mackintosh said that tech stocks “are really well-positioned” for a work-from-home environment, as opposed to the energy complex, which has been hit by weaker demand for crude oil. He noted that Zoom (ZM) has become a primary use of communication, while Amazon (AMZN) delivery service allows people to stay at home rather than go out and shop.
“The new economy stocks are doing well because they are well-positioned for the coronavirus shutdown and for all of us getting more deliveries and not taking public transit to work, and actually working from home and telecommuting,” Mackintosh.