Everyone has their risk tolerance when it comes to trading. There comes a time where scared money will not make money. Yet in times like what we are currently facing, from extremely oversold in March to extremely overbought in early April, the markets are difficult to be trading in. So a tug of war between how much to risk to reap on the rewards as certain sector of the markets are weak while others are strong.
Currently technology is strong as NDX index of Nasdaq is less than 5% from all time highs. While SPX is -18% from all time highs. Amazon is about to hit all time highs while Boeing is still down over 50% from its all time highs and was in the red for the day. So although there is a lot of head wind in the markets there seems to be optimism in certain sectors.
The optimism may or may not be a false assumption on the future outlook of the economy. For three consecutive weeks initial jobless claims have exceeded 6 millions for a total of over 20 million initial unemployment applicants.
Whether or not these recent unemployed will be temporary the reality is there is less people with discretionary income which will most likely effect consumer spending in current and future periods. How long will this drag on is dependent on the time frame of containing the Coronavirus. Since its a global event I highly doubt all countries will be able to be back in full capacity economically until a vaccine exists. Yet so economists and bankers are predicting a recovery in Q3/Q4.
However what if there is no rebound? Markets tend to be forward looking and at current time table the expectation is rebound is priced in. If not more pain would sure follow. Common sense will also note that current cases of the virus has yet to peak in this country so hard to even see Q3 being a good quarter let alone know if peak of the virus has occured.
In the case of optimism the government and FED have proven they will do all they can to support the economy in its current state until the virus is subdued and the economy is operating normal again. So there is a backing toward asset prices and evaluations, a put in place that things can't get any worse. Yet the government and the FED can only do so much as deficit and government balance sheets expand to the point of no return to norm. If indeed the intervention has to be prolonged it will most likely not be enough for the economy to get back to normal. As the days moves forward we can only hope the the virus gets contained sooner than later. A lot of traders are playing ahead of this market by buying now and hence tech index recovered and most other indexes are over 20% from its lows.
A cautionary note to take in is a stock I have been watching, a tech darling TSLA.
There is the old saying that greed kills and TSLA may likely be an example of that. Although it has recovered a bit from its lows and traders are bullish on the stock price one has to wonder if there will be complacency in the near future. Traders and investors may mostly believe in a recovery is in the near future hence they are mostly bullish. However markets also do not favor well in uncertain environments. If the government and FED's supports are not enough due to the prolong virus impact on the economy there will likely be more pain to come.
