How to Play the Market’s Renewed Concern Over Covid-19 Cases

Since late March, stock markets have been rallying even as Americans have been struggling with record unemployment, business closures, and virus fears.

Last week, that all changed. As the weather improved and states reopened, people everywhere crowded beaches, stores, and parks.

And all that mingling happened all too often without masks and with folks jammed together, judging by images online.

Meanwhile, on Thursday the market suddenly became concerned about signs of a surge of Covid-19 cases in Texas, Arizona, California, and Florida. All three major indices posted their biggest losses since March 16.

The pullback will end up creating more wealth than destroying it (but only if you do this)

This contrast between the seemingly lackadaisical public response to calls to contain the virus through wearing masks and social distancing, versus the markets suddenly showing concern for increased infections after months of ignoring it, is this week’s Reality Gap.

After months cooped up at home, not seeing anyone or doing anything, it’s not surprising people want to enjoy the summer.

Especially as the media has grown bored with the pandemic, relegating Covid-19 stories down below the fold. Big Government, meanwhile, continues to push for re-openings no matter what, despite many states failing the CDC’s original criteria for how to phase out restrictions.

But in order for these re-openings to work, we all need to work together to reduce transmission of the Covid-19 virus by wearing masks and maintaining social distancing. Arizona’s largest hospital system, for example, has already warned that they are on track to run out of ICU beds soon.

That’s why the markets’ newfound concerns mark the right approach. Whether you want to call it a “second wave” or just the next phase of the first one, Covid-19 cases seem to be rising in some states that were initially spared.

And much like at the beginning of the year, we don’t know what that will bring.

Will states lock down again? Will we reopen no matter what the cost in human lives? How will people react when a surge gets out of control?

When this kind of uncertainty rules the markets, things will be rocky. Expect a volatile week, with large down days like Thursday and this morning, as well as big rebounds like the one we saw on Friday.

Be nimble with your trades, and expect to do more quick in-and-out plays while waiting a bit to establish any new long-term positions.

And be on the lookout for these three earnings:

On Thursday, grocery giant Kroger Co. (KR), reports its second-quarter earnings. With restaurants only beginning to open back up, with strict limits, supermarket chains will continue to do well. And these earnings should reflect that.

Lennar Corp. (LEN), a home builder, reports tomorrow. With the lowest interest rates ever, and mortgages rates close to record lows as well, home buying is rising. Homebuilders like Lennar are going to be seeing more business soon.

So consider Lennar a good candidate to buy on any pullback after its earnings report.

Oracle Corp. (ORCL) also reports tomorrow. The cloud database provider has been mostly flat, missing out much of the bull market of last year. But it’s also weathered the coronavirus storm very well. With loyal customers and stable income, it’s a stock that’s not going to get slammed, but it’s also not going to see explosive growth. A good earnings report could make Oracle a reasonable “safe-haven” stock for a Covid-19 resurgence.

Great trading, stay safe out there, and God bless you,


D.R. Barton, Jr.

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