How to Find the REAL “Reopening Stock” Winners
Dear Rich Lifer,
Stocks that thrived last year due to the pandemic-inspired shift to working from home have fallen from their late January highs. Rising interest rates have put pressure on investors to focus on stocks that promise more sure returns.
Big tech firms and blank-check merger companies are also seeing swift declines, resulting in the NASDAQ dropping 8% from its record close last month.
There are many “losers” in the markets so far this year, including: Peloton Interactive Inc., the popular exercise bike producer, which is off 38% from its mid-January high. Teladoc Health Inc., the virtual care service provider which more than doubled last year, has slid 42% from its mid-February high. And even Tesla, which had a relentless run last year, has already shed $244 billion in market value since late January.
Even firms that should have benefited from the economy beginning to reopen have sagged.
It seemed like the past few weeks have been filled with headlines about “Top Reopening Stocks” and “Reopening Stocks to Watch.” Reopening stocks are basically any stocks that would benefit from a broader economic recovery in a post-pandemic world.
However, this prediction seems to have faltered quickly… The Russell 2000 index of smaller stocks has fallen 7.5% from its March 15 high. It is worth noting that smaller companies are more tied to the domestic economy than bigger companies, and many businesses that make up the Russell 2000 are cyclical companies that were pummeled last year because of the pandemic.
Last year, conditions were essentially perfect for growth stocks. Near-zero interest rates made investors willing to wait further into the future for potential profits. Meanwhile, the pandemic boosted the outlook for companies that were in a position to provide entertainment and connection for people stuck at home.
But then, the rise of Treasury yields meant future cash flows became less valuable than current ones. This accelerated the shift toward real-economy stocks such as retailers, manufactures, and banks.
These pullbacks are striking because the broad market indexes continue to trade at highs.
But, this is exactly why you can’t trust the mainstream when it comes to stock predictions.
You have to look to analysts with exclusive intel and no vested interest in which stocks will go up… the experts who are working to help people like you find the best plays and NOT to line their own pockets.
Don’t miss Nomi reveal the name of a stock that’s perfectly positioned for America’s reopening… on stage… LIVE.
Some portfolio managers are still optimistic and believe the outlook for stocks is positive due to the economy expanding, vaccinations increasing and low interest rates.
Others are more skeptical and worry that the double retreat shows the reopening trade has been driven by flowing speculative funds, similar to the earlier tech boom. According to FactSet, investors have funneled $11.5 billion into U.S. large-cap value exchange-traded funds so far this year, compared to nearly $4 billion in outflows from similar growth funds.
Some analysts believe further unraveling of speculative stock trades could hit harder in coming weeks and potentially weigh on the rest of the market. Andrew Slimmon, managing director and portfolio manager at Morgan Stanley Investment Management, states that hot stocks that have seen long run-ups are “very vulnerable to a continued correction.”
Many analysts also believe that selling will likely continue because a lot of investors still hold a large portion of their assets in growth stocks.
Investors also seem to be cooling off on shares of special-purpose acquisition companies (SPACs), many of which have taken hits this year. David Lefkowitz, head of equities for the Americas at UBS Financial Services, says this is because many of the reverse-merger targets of these companies are unprofitable.
Virgin Galactic Holdings Inc. has fallen 66% from its February high after doubling in 2020. Churchill Capital Corp. IV, which quintupled from its initial offering price, is also down 65% from a February high. Portfolios heavy with these types of SPAC stocks have seen big losses.
Other Economic News
In other economic news… Household spending is accelerating after falling 1% in February. Increased vaccinations and stimulus checks in pockets are encouraging consumers to return to travel, dining and shopping.
Private-sector data on restaurant visits, hotel bookings and airline travel all show a steady pickup in spending in recent weeks.
Household income had also decreased in February by 7.1%, but that drop also proved to be temporary, and economists forecast that incomes will continue to rise along with spending, setting the economy up for a year of strong growth.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, says the consumer-led economic boom is “already starting to happen” and that this is not a forecast; it is “just an extension of what’s already visible.”
The effects of this spending surge are being closely monitored by investors, economists and the Federal Reserve due to its potential result in inflation.
The Fed does expect inflation to increase, but only temporarily. They project annual inflation, measured by the PCE price index, will reach 2.4% by the end of this year and then recede to the central bank’s 2% target next year.
One of the main reasons the Fed expects inflation hikes to be temporary is because unemployment is still at 6.2%, which is still almost double the unemployment rate last year — 3.5%.
However, jobless claims fell to their lowest levels of the pandemic this month. Worker filings for unemployment benefits, a proxy for layoffs, fell to 684,000 last week from 781,000 a week earlier. U.S. employers added 379,000 jobs in February, mostly in the leisure and hospitality sectors.
There are still concerns about long-term unemployment. Total continuing claims, a representative for the number of people receiving benefits, rose to 19 million in the week ended March 6, from 18.2 million a week earlier.
An alternative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons was unchanged at 11.1%.
We remain cautiously optimistic about the ongoing economic recovery. Economists are predicting a new pandemic low for jobless claims in the week ending March 27, though weekly figures have proven volatile.
As always, time will tell…
To a richer life,
The Rich Life Roadmap Team