There is an old saying about the stock market: ” A bull market will climb a wall of worry, while a bear market will slide a slippery slope of hope.” Loosely translated, that means that a bull market may have periods of decline, while a bear market may have short-term rallies. With the current upswing in stocks during the end of the bear market, is it safe to say Wall Street has recovered from COVID-19?
In this TradingSim article, I’ll explore whether the latest rallies mean that the stock market is in a sustained recovery for new investors. I’ll also write about 10 stocks that are performing well and driving the recent Wall Street rebound.
Table of Contents
What is a slope of hope?
A slope of hope is a glimmer of hope in a bearish market. The phrase comes from financial expert Robert Prechter. He noted that even if stock prices are falling, there’s still hope for a rally. He explained the meaning of the phrase in 2010.
“Even though the market is about to begin its greatest decline ever, the era of hope is not quite finished. For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery. Our name for this phase of the bear market is the ‘Slope of Hope’,” said Prechter.
Is the U.S. still in a recession?
Even though the stock market is recovering, the U.S. economy at large is still struggling. The country’s gross domestic product (GDP) contracted at 32.9%, the largest drop since the Great Recession in 2009.
“It’s very much a sort of two-tiered economy right now,” said Behravesh.
When the GDP plummets for two quarters in a row, that means the U.S. is in a recession. While the economy is cratering, this recession is different from the previous one ten years ago. Liz Ann Sonders, Schwab’s chief investment strategist, notes that the nationwide shutdown caused the current recession.
“We’ve never had a full-stop economic shutdown by government mandate ever in history,” said Sonders.
This recession is in contrast to the one caused by the collapse of big banks in 2008.
Why are stocks sliding down the slope of hope?
While the economy is still sluggish, stocks have been on a volatile ride. As Sonders noted, the rollercoaster ride of the stock market over the last few months has been unprecedented.
‘We went from an all time high on February 19 to down 35% on March 23 at a record clip, the fastest move from an all-time high to bear market territory in history. But the speed with which the rebound happened is unlike anything we’ve seen before,” said Sonders.
“Record-low mortgage rates, the onset of spring and improving sentiment are spurring a burst of activity in the housing market. For the most part, economic indicators are showing more strength than expected, confirming that the worst of the COVID-19 recession is behind us,” said Schwartz.
Ironically, the economic hardships that many Americans are experiencing are helping drive optimism in the stock market. When the COVID-19 crisis started, many people had to quarantine and miss work. The government paid out $1,200 economic stimulus checks to Americans to supplement missed income. As a result, many Americans finally had money to spend on household goods and food, which spurred Wall Street optimism.
“Typically the market will start declining before a recession is visible and it will start recovering about four months before the end of a recession”, said Timmer.
When did the slope of hope start?
While the economy is in a recession, ironically, the stock market has been climbing. Quincy Krosby is a chief media strategist at Prudential Financial. He commented that the stock market tends to rise and fall based on future hopes, not current reality. For example, in May, despite high unemployment and civil unrest, the stock market climbed. That was because of news about possible coronavirus vaccines.
“Every time there has been a positive announcement regarding a vaccine, it’s had a halo effect on the market. This is a market that has been desperate to see the other side of this, and the only way it can do that, is watching those announcement from the companies moving towards a vaccine,” said Krosby.
Why is the stock market rising despite negative economic news?
“The market always seems heartless, without any emotion, without caring, without empathy. But that’s the nature of the market. The algorithms almost certainly have no shred of empathy. They’re not supposed to,” said Krosby.
Nicholas Colas is co-founder of DataTrek Research. He notes that the stock market has a history of rising despite volatility outside Wall Street.
“There are many valid reasons to be bearish on risk assets like stocks or corporate debt just now, but history shows markets look through many sorts of tumultuous events and have done so for decades. That may seem counterintuitive, and perhaps not even ‘fair,’ but it’s absolutely true,” said Colas.
“The impact on business in terms of bankruptcies and lower investment will also be key. It is easy to imagine that in the wake of the virus, entrepreneurs may be hesitant to try and start new businesses, which are often said to be the lifeblood of the U.S. economy. Sadly, many businesses will have failed due to the effects of the pandemic, and even those that do survive may likely find their animal spirits dampened significantly,” wrote Montier.
Montier added that while he isn’t trying to predict the future of the stock market, Wall Street is still trying to predict the future with certainty.
“I don’t know the answers to these questions, and I am going to refrain from participating in the very popular trend of becoming an armchair epidemiologist or virologist, but I do know that these questions and many others exist,” said Montier.
“I am also certainly not in the business of trying to second-guess how the future will unfold, but I do know that anyone claiming certainty of foresight is likely to be sorely disappointed. And yet, Mr. Market appears to be doing exactly that,” added Montier.
Some analysts say stock market is still on wall of worry instead of slope of hope
In addition to Montier, Doug Ramsey is chief investment officer and portfolio manager at the Leuthold Group. He’s skeptical that the latest rally will match the last bull market rally in 2009.
“The current rally is either the first up-leg of a new bull market or the second-largest bear-market rally in the past 125 years,” said Ramsey.
“I’m trying to look at the glass as half-full, but how can we embark on a multiyear bull market when we’re at valuations that are so much higher than what they were at the same stage of the last bull market?” added Ramsey.
“There are no roller coasters that can replicate what stocks have done so far in 2020,” said Detrick.
Despite the volatility of the stock market, there are some stocks that are performing well. Here are ten stocks that are doing well despite the pandemic.
Clorox stock (NYSE:CLX) has been a top performer since the quarantine. With a demand for cleaning products, the company’s antiseptic wipes have been in high demand. Clorox stock roared up 54% this year. The stock has jumped 16.6% just over the past three months.
“Since Q3, we were able to bring on more than 10 new suppliers to help us maximize our output, not just for disinfecting products, but for other parts of our portfolio too,” said Dorer.
“For disinfecting products, we’re continuing to run our plants 24/7, and we’ll be bringing more disinfecting capacity online in the midterm. With all the levers we’re pulling to expand output, I am confident in our ability to do better for our customers and consumers,” added Dorer.
Analysts rate Clorox stock as a buy
Because of Clorox’s strong sales, many analysts rate Clorox stock as a buy. Linda Bolton Weiser is D.A. Davidson’s senior research analyst. She wrote in a note to clients that the strong demand for Clorox products makes Wall Street go down a slope of hope.
“Clorox continues to chase demand for disinfecting products and is still prioritizing shipments to healthcare facilities, which has caused some stock-outs on retail shelves and therefore share losses,” wrote Bolton Weiser.
2. Proctor & Gamble a stock that takes Wall Street on slope of hope
“Capping a strong year, a very strong April-June quarter. Organic sales up more than 6% on top of the base period, that was up 7%. Volume, pricing and mix each contributed to top line growth. Strong organic sales growth in our two largest markets up 19% in the U.S. and 14% in Greater China,” said Moeller.
“With momentum behind both pricing and volumes, we believe P&G can still generate mid-single-digit-plus organic sales growth in 2020 despite the challenges presented by COVID-19,” analysts wrote.
“We expect P&G to leverage its improving top-line throughout its P&L, as we believe P&G will be able to drive operating leverage throughout the business (as it has done in the past) and unlock additional cost savings from its productivity programs.”
Zoom growth drives Wall Street down a slope of hope
It’s hard to imagine a stock that grew more in the last few months than Zoom (NASDAQ: ZM). The videoconferencing company had a whopping 169% growth from last year. In its Q1 2021 earnings report, CEO Eric Yuan spoke about the ubiquity of Zoom as more people worked from home.
“We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1. The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives,” said Yuan.
“I am proud of our Zoom employees who dedicated themselves to support customers and the global community during this crisis. With their tremendous efforts, we were able to provide high-quality video services to new and existing customers,” added Yuan.
“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” said Bezos said in a statement.
“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS,” added Bezos.
Is Amazon stock a buy?
With Amazon’s strong Q2 2020 earnings, many analysts rate Amazon stock as a buy. K.C. Ma is president of KCM Asset Management and is a finance professor at the University of West Florida. He rates the stock as a buy for investors.
“The strong gains in ad, cloud and international margins may help offset the free one-day shipping for Prime,” he says. Long-term trends of cloud consumption should “propel (Amazon Web Services’) revenue even higher,” said Ma.
“With further economies of scale at AWS, likely continued strong growth in digital advertising and an increasingly predominant growing e-commerce base of third-party sellers, Amazon seems to us well-positioned to further prosecute its strategic mix shifts toward higher-margin businesses in 2020,” added Ma.
“Despite the run in Amazon shares, our sense is investors have yet to fully price in the potential upside from Amazon’s entry into the advertising business, which is growing quickly but currently is only a fraction of the size of Facebook and Google,” said Bailey.
Amazon’s stellar performance this year has led Wall Street down a slope of hope that the bear market is officially over.
“Our operating profit improved in Q2 despite challenging circumstances. Positive impacts included lower operating costs due to a temporary reduction in employee compensation expense, a sequential increase in regulatory credit revenue and deferred revenue recognition of $48M related to a Full Self Driving (FSD) feature release,” said Tesla.
“These positive contributions were offset by significant costs related to factory shutdowns, as well as a sequential increase in non-cash SBC expense primarily attributable to $101M related to 2018 CEO award milestones,” added Tesla.
“Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors,” said Tesla.
Since making the decision, Tesla stock jumped 30%. The electric car company continues to be one of the best-performing stocks of the year.
Analysts bullish on Tesla stock as Wall Street goes down slope of hope
“We[Cowen] continue to be cautious on Tesla, but anything EV related is red-hot for investors now and there is a scarcity of ways to invest in the theme, thus we see the stock continuing to ‘work’ near-term despite our caution on competitive positioning over time and valuation,” wrote Osborne in a note to clients.
Wedbush’s Dan Ives also rates Tesla stock as a buy. He thinks that Tesla’s widely available electric car battery will raise Tesla’s stock even more.
“We[Wedbush] continue to believe [electric vehicle] demand in China is starting to accelerate in July/August with Tesla competing with a number of domestic and international competitors for market share with Giga 3 remaining the linchpin of success which remains the prize that [Chief Executive Elon] Musk and Tesla are laser-focused on capturing,” wrote Ives in a research note.
Tesla is a stock that has shown enormous growth and is leading Wall Street down a slope of hope.
“We appreciate the confidence of the U.S. government in our mRNA vaccine platform and the continued support,” said Bancel.
Moderna leads investors on slope of hope with robust Q2 2020 earnings
Along with the coronavirus vaccine, Moderna’s Q2 2020 earnings were impressive. Moderna’s chief financial officer, David Meline spoke about the company’s $66.35 million revenue.
“We ended Q2 2020 with cash and investments of $3.1 billion, compared to $1.7 billion at the end of Q1. The increase is driven by the capital raise in May of this year. Net cash used in operating activities was $130 million for the first half of 2020, compared to $253 million in 2019,” said Meline.
“We now await visibility on what agreements with other countries might look like but see the news as a positive signal re: Moderna’s potential entry into a commercial space often dominated by big-cap,” wrote Geulah Livshits in a note.
“If you’re a little bit more of an aggressive trader and like to trade on more of an intraday basis, [stocks] like Moderna look absolutely amazing,” said Shay.
Moderna is a strong pharmaceutical stock that leads Wall Street down a slope of hope.
Another pharmaceutical stock that’s soaring is Gilead (NYSE: GILD). In addition to Moderna, Gilead’s COVID-19 treatment, remdesivir, is in the trial stages. Gilead recently partnered with another pharmaceutical giant, Pfizer, to manufacture the drug. Gilead’s CEO Albert Bourla spoke about the deal in a statement.
“From the beginning it was clear that no one company or innovation would be able to bring an end to the COVID-19 crisis. Pfizer’s agreement with Gilead is an excellent example of members of the innovation ecosystem working together to deliver medical solutions,” said Bourla.
“Together, we are more powerful than alone. As one of the largest manufacturers of vaccines, biologics and sterile injectables, it is a privilege to offer our expertise and infrastructure to help fight this pandemic. In that spirit, we are pleased that Gilead is using our manufacturing capacity to help facilitate supply of this medicine to patients as quickly as possible,” added Bourla.
“We price remdesivir well below the value it provides to enable access at this critical time and ensure that we continue to meet our responsibilities in the future with further investment in remdesivir and in research that will help us to prepare for any future pandemics. The extensive clinical development work continues on remdesivir, so that we can potentially extend the treatment to many more patient groups,” said O’Day.
Because of its promising COVID-19 vaccine, Gilead is a strong stock that will lead investors on a slope of hope.
8. Target rise sends Wall Street on a slope of hope
During the pandemic, online shopping has boomed and Target(NYSE:TGT) benefited from that growth. The store chain’s stock climbed 37% in the last few months. In addition to online shopping, in-store sales and curbside pick-up also jumped in the last few months.
“The results we reported this morning are truly unprecedented. On the top line, we delivered second-quarter comparable sales growth of 24.3%, the strongest we’ve ever reported. Equally remarkable on the bottom line, we generated adjusted EPS of $3.38, a new record high,” said Cornell.
“The basic point is that Target has developed a proposition that is cohesive which means its guests will happily shop multiple categories allowing Target to maximize its share of wallet,” wrote Saunders.
“This has always been beneficial, but it came into its own at a time when consumers have been reducing the number of shopping excursions that they make. Target’s position also stands in contrast to some of its competitors, such as Walmart, which is far less able to get people to shop across multiple departments,” added Saunders.
“Across every industry, we’re seeing this surge towards a digital-first strategy, and all of the tools and products and services that we offer are probably more relevant and important across multiple industries than they’ve ever been before,” said Schulman.
PayPal growth drives Wall Street down a slope of hope
Because of the recent surge in digital payments, PayPal’s Q2 2020 earnings were better-than-expected. Schulman spoke about the results.
“In the midst of the COVID pandemic, we have seen substantial macro changes that we believe will have a lasting and profoundly positive impact on our business. The world has accelerated from physical to digital across multiple industries including retail. Merchants are embracing a digital-first strategy, and these trends have fueled the rapid rise of digital payments,” said Schulman.
“Revenues grew by 25% on an FX-neutral basis to $5.26 billion, accelerating after our strong 20% revenue growth in April. This is the first time our quarterly revenues have exceeded $5 billion,” added Schulman.
“Given increased digital adoption over the last couple of months, convenience offered by these platforms amid the pandemic, and a large number of retailer store closures & bankruptcies, the shift to online could remain elevated over the coming quarters,” said Goldman Sachs.
PayPal’s growth during the pandemic is leading the stock market down a slope of hope to end the bear market.
As a result of COVID-19’s quarantine, UPS (NYSE:UPS) stock has soared with an increase in home deliveries. The package delivery company had revenue increase to $20.5 billion, a 13% jump from Q2 2019. CEO Carol Tomé spoke about the results.
“Our results were better than we expected, driven in part by the changes in demand that emerged from the pandemic, including a surge in residential volume, COVID-19 related healthcare shipments and strong outbound demand from Asia,” said Tomé.
“UPSers are keeping the world moving during this time of need and I want to thank our team for their hard work and outstanding efforts to serve our customers, our communities and each other,” added the CEO.
UPS a buy because of more deliveries in quarantine
“E-commerce parcel pricing is expected to remain strong as the pull forward of e-commerce penetration has strained delivery capacity,” wrote Vernon in a research note. “With UPS looking to get ‘better, not bigger,’ FDX [FedEx]emphasizing returns and the [U.S. Postal Service] curtailing capacity, the rate environment at present is outstanding.”
“Given that UPS provides both a critical and difficult-to-replace service for many of its customers, we believe this strategy shift could drive a multi-year tailwind for financial results,” wrote Hoexter in a note to clients.
Slope of hope leads investors into new bull market
With the success of the previously mentioned stocks, Wall Street is going down a slope of hope. After the end of the shortest bear market, investors can feel confident that they’re trading stocks in a new bull market. With TradingSim blogs and charts, traders can determine when the stock market will slide down a slope of hope into a long-term rally.
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