Wednesday Market Briefing 06-03 — Work From Home

One hundred sixty nine percent…

That’s the annual revenue growth Zoom Video (ZM) reported during the last quarter. The company also nearly doubled its previous guidance for revenue this year.

As more employees work from home to avoid spreading the virus, the company’s overall business has grown.

But this trend (working from home, video conferences, virtual meetings) has already been in place before the coronavirus crisis. The current environment just helped to accelerate that existing trend.

As investors come around to the fact that this is an overall trend (not just a coronavirus issue), we should see the “work from home stocks” continue to ramp higher.

Dow June Futures: Up 260 (1.01%)
S&P June Futures: Up 21.00 (0.68%)
Nasdaq June Futures: Up 22.25 (0.23%)

The recovery bull market continues. While the Nasdaq turned positive on the year a couple weeks ago, we’re now seeing the S&P close to crossing that milestone as well.

Fear of missing out — as investors still have cash on the sidelines — should continue to propel this market higher. We may see an overall “panic buy” scenario before getting anywhere close to a meaningful pullback

Gold June Futures: Down 26.20 (1.50%)
Silver June Futures: Down 0.23 (1.23%)

As investors embrace more risk, precious metals are being abandoned as a safe haven. But the current weakness in the U.S. dollar and longer-term concern of inflation should ultimately help to support precious metal prices.

Gold has only pulled back to the lower end of its recent range. And silver continues to be in an overall uptrend. So this early-morning pullback doesn’t appear to be a major concern yet.

10-Year Yield: 0.723%  
2-Year Yield: 0.180%

As investor fear of missing out drives more capital into the equity markets, money is starting to flow out of the bond market. This is helping yields to rise slightly, and overall bond prices to pull back.

Still, bonds continue to trade in a relatively tight range. It’s tough to take too much meaning from this morning’s action.

Breaking Morning News

The private sector lost 2.76 million jobs in May according to ADP. While the headline number is certainly sobering, this is actually better than what most economists were expecting. As the U.S. economy steadily reopens, we will be watching the job figures closely to monitor the health of the rebound.

The Fed’s controversial decision to invest in corporate debt by purchasing ETFs is being put into practice. Of note, about one sixth of the Fed’s ETF purchases went to high-yield (non-investment grade) funds. This indirectly provides capital to some of the more risky corporations. The question is whether the Fed’s actions in the corporate bond market will reward financial irresponsibility, or if this is a necessary step towards helping the pressured economy.

While the $600 extra unemployment bonus will likely be phased out next month, some lawmakers are proposing a new “return to work bonus.” This could be a helpful move toward encouraging free market forces to drive employment and economic growth, ultimately helping to reduce the amount of government stimulus needed to prop up the U.S. economy.

Chart of the Day

 

The value of the U.S. dollar (compared to a basket of international currencies) is dropping.

Since the dollar is considered a “safe haven” during times of distress, the decline tells us that global investors are now willing to take more risk with their capital.

A lower dollar can benefit the U.S. economy because international buyers can purchase U.S. goods and services more affordably (with their own currency that is strengthening against the dollar). Blue chip companies with a large portion of sales from overseas will benefit the most.

The weak dollar should also provide a tailwind for gold and silver — simply because it will take more “weak dollars” to buy an ounce.

Quote of the Day

It is poor policy, I find, to wait for Opportunity to knock at your door. I train my ear so that I can hear opportunity coming down the street long before it reaches my door. ~Richard D. Wyckoff

Final Thoughts

Despite the economic concerns, the social challenges, and the health risks; U.S. markets remain resilient. This is great news for investors and a testament to the strong American spirit.

Continue to manage risk carefully by taking some profits off the table as they accumulate. But don’t completely bail out of this strong environment for investors.

Talk to you tomorrow!

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Zach Scheidt