Despite all the shocks that have befallen the country in recent months, the onset of summer has brought quarantine mitigations around the world and some improvements in the economy, although this is not the end yet, so is it worth to buy stocks in crisis?
Unexpected labor market indicators
When you’re deciding, is it worth to buy stocks in crisis if it comes to american companies, you should take a look at the general condition and trends in the American economy. One of the surprises was that the unemployment rate fell to 13.3% from 14.7%, while analysts expected 19.7%. These are very unexpected results after the country experienced the fastest and most severe drop in the labor market since the Great Depression.
The released statistics on the US labor market showed that the number of jobs outside the agricultural sector grew by 2.5 million in May, although analysts had expected a decrease of 8 million. A month earlier, the figure had fallen by 20.7 million. In the private sector, growth was 3.1 million, while according to the consensus forecast: analysts expected a decrease of 7.5 million
This week, the US Department of Labor reported that the number of initial claims for unemployment benefits over the past 11 weeks has exceeded 42 million. Futures on the S&P 500 and the dollar have responded to this release with growth.
Key components that influenced the indicator:
- An increase in the number of jobs in non-farm payrolls by 2.51 million with a negative consensus forecast for a decrease of 8 million.
- A decrease in the unemployment rate from 14.7% to 13.3%, with a projected increase to 19.7%. The share of economically active population increased from 60.2% to 60.8%.
- The average hourly wage rate relative to April decreased by 1%, with a forecast of + 1%. On an annualized basis, the indicator increased by 6.7%. Apparently, this is due to the growth of employment in the sectors of the low-wage services sector, where previously the most active staff reductions took place.
The number of jobs increased due to the fact that workers in the restaurant and hotel industry began to return to work. In March and April, a record loss of jobs was recorded, however, the damage from national quarantine measures was apparently not as serious or long-term as previously thought.
The stock market reacted to the news with growth, the Dow Jones Industrial Average index rose by about 700 points,which can help you find an answer to the question “is it worth to buy stocks in crisis?”. So if it’s worth, what stocks of companies should you pay attention to this week?
Shares of the largest US airline American Airlines in two days added about 90%. At Friday’s high, they hit $ 23. A sharp increase followed after the airline said it would increase the number of July flights by 74% compared with June. This indicates a more active recovery in demand than expected. On Thursday, AAL shares rose 41%, and then went up another 14% at Friday’s premarket. The price jumped to $ 19 per share, which is 60% higher than Wednesday’s closing price.
During the trading session on Friday, the stocks rolled back to $ 18. They could not gain a foothold above the 200-day moving average Bollinger, and Friday’s growth was almost leveled. The recovery in demand for flights is certainly a positive factor for American Airlines. However, the coronavirus pandemic has not yet ended, and also the economic situation is uncertain. The growth of securities above $ 24 in the medium term seems unlikely. A negative technical signal will be the AAL fixing below $ 17, so stay tuned for more information before deciding whether to buy stocks in crisis right now.
In a press release, the company said it plans to operate 55% of domestic flights and nearly 20% of international flights in July 2020 compared to the same period last year in response to increased demand for air travel.
Vasu Raja, Senior Vice President, Network Strategy, said: “We are seeing a slow but steady increase in domestic demand. After a thorough analysis of the data, we compiled the corresponding July schedule. ”
Shares of other major airlines Delta Air Lines and United Airlines rose yesterday by 13.7% and 16% respectively, and today they are gaining another 9% and 11%. On Wednesday, Delta Air Lines CEO Ed Bastian said the company plans to fly twice as many domestic flights in July than in May.
In addition, yesterday, the Civil Aviation Administration of China (CAAC) announced that it allows foreign airlines, including American, to increase the number of flights to China.
However, Wall Street on the horizon of the year looks very frostily at the shares of American Airlines. The consensus forecast, according to Refinitiv, is at $ 12.75. There are 3 times fewer recommendations for buying shares than for selling. Earlier investment holding of Warren Buffett, Berkshire Hathaway, having fixed significant losses, got rid of investments in the sector.
Another company, the shares of which many investors rightly pay attention. The huge interest in online shopping and cloud services during the period of self-isolation measures led to the rise of Amazon. In the takeoff of the US market in recent days, stocks have not participated. The online shopping bias is a long-term trend. However, now papers, repeatedly updated historical highs, went sideways, because quarantine measures in many countries are weakening, and it is more pleasant to make part of purchases in real stores.
Given the high multiples, the locally growth momentum in AMZN stocks has dried up. Papers wander around the upper boundary of a wide rising channel according to the analytical method of Bollinger waves. Trading Friday closed at $ 2,490. For more confident purchases, it makes sense to wait for the AMZN to go down to the area of $ 2200–2100.
Activision Blizzard stocks(ATVI)
Video game maker stock has lagged behind recent US market growth. From the environment of paper are reduced. The company has postponed updating the Call of Duty series of games in solidarity with protests in the United States.
ATVI sank into the support zone of $ 68–67, from where they started to bounce. On Friday, they closed at around $ 69.4. From a technical point of view, the probability of a return to the range of $ 73–74 is quite high.
Economic Stimulation and Political Risks
According to Bloomberg, the Donald Trump administration is preparing to propose a new package of fiscal incentives that will exceed $ 1 trillion, including an infrastructure spending program. Apparently, if the package is approved in Congress, then this will happen closer to the end of summer. The volume of fiscal stimulus in the US has already exceeded $ 3 trillion.
This week the Fed meeting will be held. Interest rates will remain unchanged and the regulator may indicate a list of available instruments to support the economy. An official digital forecast for macroeconomic indicators will be presented.
However, the focus is still on the ongoing unrest in many cities of the country, which may impede the economic recovery. On the eve of the situation managed to take control, but the protests did not completely subside. In addition, although tensions between the US and China in recent days have faded into the background due to the internal situation in the country, the problem remains relevant. Therefore, in any case, when you want to find out is it worth to buy stocks in crisis, consider all the factors so as not to lose your money.