Stocks are 'on fire' but a second covid-19 wave isn't priced in: deVere

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Stocks are 'on fire' but a second covid-19 wave isn't priced in: deVere

US stock markets might be 'on fire' as earnings season begins -- but Wall Street has not priced in a second wave of covid-19, the CEO of deVere Group warned today.

The warning from Nigel Green comes as the S&P 500 gained over 2% in early trading, following gains in European and the Asia-Pacific markets.

Green noted: "This week, with earnings season underway, we are going to see just the beginning of how corporate America and Europe have been hit by the coronavirus pandemic. The results are likely to be dismal and forecasts for the rest of the year can be expected to be revised down.

Many savvy investors will be riding the wave of volatility to build up their portfolios through lower entry points and seeking value and decent returns in order to grow their wealth. Why? Because history teaches us that over the longer-term the performance of stock markets is fairly predictable: they go up.”

"However, investors are overlooking this. Instead, they are clinging on to relatively positive economic news from China, hints that some major lockdowns in Europe and elsewhere are being eased, and that confirmed cases are falling, meaning economic activity can be revived."

He continued: "It's truly astonishing that as global economic growth forecasts are looking bleak and most countries are battling potentially one of the worst downturns in a generation, the markets are on fire and trading as though these are normal times."

'Unchartered waters'
"They are not normal times. We are in unchartered waters. This isn't the time to be complacent as I doubt the bear market is over. We shouldn't call the bottom yet."

Green added: "It would appear that the financial markets are oblivious to the obvious and serious financial threat of a potential second wave of the coronavirus.  Alarmingly, this does not seem to have been priced in."

He went on to add: "The markets' bullish sentiment during this mass disruption and dislocation would be baffling enough, but there are also other headwinds on the horizon."

These, he noted, include the US presidential election, the threat of a no-deal Brexit, and the longer-term inflation risks.

The deVere CEO observed: "We can expect markets to remain volatile in the short-term.

"Many savvy investors will be riding the wave of volatility to build up their portfolios through lower entry points and seeking value and decent returns in order to grow their wealth. Why? Because history teaches us that over the longer-term the performance of stock markets is fairly predictable: they go up."

Nigel Green concludes: "The markets are growing more positive about the covid-19 crisis. But to sidestep taking a potentially massive hit, investors must avoid complacency and emotional decisions through solid financial strategies."

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Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.