Back to Blog
Market Updates

Smart News - Weekly Highlights

Market Update

The week ahead

If there’s one topic which continues to dominate all others on our Smart News social media aggregator, it is, unsurprisingly, coronavirus. The chat around it takes many forms and is reliably international, whether it’s media speculation about which company is coming close to producing a viable vaccine to reports on where the latest outbreak is happening. Overall, social media commentary concerning the virus is less optimistic than it was a month ago, as hopes of getting the global economy restarted have faded thanks to the sharp uptick in Covid-19 cases, particularly in the US.

Despite this, most of the world’s major stock indices remain within striking distance of their all-time highs, many which were hit in February this year before the coronavirus pandemic peaked. Recent gains have come on the back of the second quarter earnings season which has produced a pile of ‘positive’ surprises.

Now some people may question what ‘positive’ means in this context. After all, this earnings season could hardly be described as a normal one. But as we enter into the final weeks of corporate announcements , around 80% of the S&P 500 constituents that have reported so far have beaten analysts’ estimates. This is higher than the historic average of 70%. In addition, those S&P companies that have beaten estimates have done so by over 13%, way above the historic norm of 3.3%. But it’s worth bearing in mind that expectations were extraordinarily low. This quarter, unlike the first, has suffered the full effects of the global coronavirus pandemic and the associated lockdown. In addition, around 40% of companies have declined to give guidance over what the third quarter may look like, a much higher percentage than usual. This suggests that there’s a lot of uncertainty out there.

Nevertheless, it looks as if the majority of financial analysts were overly pessimistic and so this season is being considered a positive one. While corporate executives have concerns about how the rest of the year may play out, investors and traders continue to make hay while the sun shines.

Now there’s another topic which is receiving a considerable amount of social media attention, and that is the stark division between a handful of tech stocks and the rest of the market. Just five tech giants - Alphabet (Google’s parent company), Amazon, Apple, Facebook and Microsoft are responsible for over 20% of the S&P 500 by market capitalisation and are up a combined average of more than 30% since the beginning of the year. This means that the remaining companies in the S&P 500 have lost ground since the start of 2020. The question now is whether the Big Five will continue to dominate or if we finally see some rotation into underperforming sectors. In trying to answer this question, we have to consider a number of issues: which companies are thriving (and will continue to thrive) during the pandemic; do we have to adapt to living with the coronavirus from now on; will investors continue to pay record prices for the big tech stocks; could there be a time to take profits out of these ‘momentum’ plays where buying begets more buying, and into more attractively priced ‘value’ stocks? These are all important questions. But as things stand, investors are only asking: why sell companies that are either immune to the pandemic, or benefit from it, to buy ones that have suffered so badly from it, such as property, bricks and mortar retail, travel and leisure? Much will depend on the kind of recovery we experience for the rest of this year.

A few weeks ago, we saw the big five tech giants release some strong numbers. But now we have a more eclectic bunch of corporates reporting. This week’s ‘Highlights’ feed focuses on Simon Property, Duke Energy, Cisco and Tapestry (Coach).We’ve already seen some interesting commentary across social media including a piece on Seeking Alpha which asks whether Cisco has gone from being the ‘poster child for tech growth In The 1990s’ to ‘the value stock for the 2020s’? In addition to these earnings reports, our ‘Highlights’ feed covers important data releases, including the US Consumer Price Index, Crude Oil Inventories and Retail Sales. You can find the feed on our Smart News widget in the bottom right corner of the trading platform. If you’re not sure where it is, have a look at the vlog which accompanies this article. While it’s incredibly easy to build your own watchlist, our ‘Highlights’ feed makes it quick and easy to find all the key corporate and economic events in one place, allowing you to keep a step ahead of the mainstream media within seconds.

Financial spread trading comes with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread trading works and whether you can afford to take the high risk of losing your money.