Stocks in the US rebounded slightly overnight. The Dow Jones ended up 0.6% and the tech-focused Nasdaq shot up 1.3%.
It was enough to bring a bit of calm to the morning’s headlines.
A quick scan of our major news channels today told me clearly…
Coronavirus was off the front page.
It was still news — especially given the fact that 75 people in China died yesterday — but the way it was presented was less sensational.
News.com.au presented it as a kind of ‘travel warning’ piece. A far cry from the Armageddon, end of the world kind of stuff I was reading over the weekend.
Anyway, with the fear subsiding, I think it’s likely the markets will go back to making money the good old-fashioned way. By buying stocks they expect to go up.
That’s what looked to be happening in the US last night.
Nike rose a solid 3.7% with JP Morgan calling it a ‘multi-year buying opportunity’. And Tesla soared 13% back to record levels after a favourable research report put a $808 price target on the stock.
On the other hand, cruise company Carnival fell 1% after news broke one of its guests tested positive for coronavirus six days after leaving one of their ships.
It’s clear to me this is going to be a stock picker’s market…
The bull market is still on
If you look at a chart of any of the major indices, you’ll see we’re still clearly in a bull market.
So far, the down days last week are nothing more than a slight pullback. Markets could fall a lot lower and we’d still be in a bull market.
Which makes me think the crash cries of late are a bit overdone.
Though as I said yesterday, there are some signals in the Baltic Dry Index (BDIY) that point to slowing economic growth, that you need to be aware of.
However, here’s the thing…
Markets don’t just react to facts alone. They also react to the actions of those tasked with reacting to slowing growth.
That’s a key point to understanding why markets move the way they do. It catches a lot of people out.
Right now, markets will expect central banks to cut interest rates and pump more money into the economy if the economy starts to slow.
It’s a ‘bad news is good news’ way of thinking, which sounds crazy I know. And one day it’ll stop working.
But for now, I think they’ve enough firepower up their sleeve to keep the party going if they want to.
You can certainly bet President Donald Trump will throw the kitchen sink at the markets in this election year, that’s for sure.
Anyway, like I said before, if the bull run is still on — which I think it is — then you’re looking at a potential opportunity to get into some cheap stocks over the next month or two.
Here are a few ideas you could look into…
Rebound stocks to have on your radar
Before I get into some opportunities you could look at, let me put out the fact that if the coronavirus gets worse, then all bets are off.
Indeed, a global pandemic is exactly the kind of black swan event that you can’t really plan for.
So, you need to remain wary.
But if it passes and gets under control like pandemics of the past, then a few well-timed investments now, might pay off pretty quickly.
For example, During the SARS epidemic in 2003, China’s growth fell to 0.8% in the second quarter of 2003 from 2.9% in the first quarter, before bouncing back to 3.7% in the third quarter.
If that’s what happens here, stocks with exposure to China — that have been beaten down in the panic — might pay off for you later this year.
Which is why they’re a good rebound spot to look at.
A list of tech stocks that include at least 15% revenue exposure to China includes big names such as Apple, Intel, Nvidia, TE Connectivity, and Western Digital.
Certain mining stocks might represent a good opportunity if China tries to spend its way out of any short-term growth problems.
Though you might want to be careful of jumping in too soon here as prices of iron ore, copper, and oil fell sharply last week and look to be under pressure.
And there’s also question marks over China’s ability to fund such spending as aggressively as they could in the past.
But over the next few months, commodity prices could start to turn. And if you’re ready, you might be able to snag a few bargain miners ready to ride the recovery.
On that note, you might want to have a look at Qantas Ltd [ASX:QAN] too.
Its share price fell heavily because of the travel bans in China. But with will oil prices also falling sharply too, the hit to profits might not be as bad as the markets think.
An idea worth looking into…
At the smaller end of the market, biotech stocks Biotron Ltd [ASX:BIT] and Genetic Signatures Ltd [ASX:GSS] are two companies that have put out recent announcements regarding possible products relating to coronavirus.
You can read them here and here.
Be careful though, as they’re both speculative biotech stocks, so they’re not for the faint-hearted.
But with the risk of infectious diseases top of mind, they might be the kind of stocks investors are now pretty keen to look into.
Editor, Money Morning
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