May 12th proved muggy day for INDEXNASDAQ IXIC. Predictions got mauled, models were upended by faltering financials, investors went south and recession worries lingered. The Nasdaq Composite fell 2.1% at the end of the trading day.
We feel the time to overweight financials will be when there is an admission that the problems are systemic, and a formal government entity is put in place to facilitate broad financial sector consolidation by moving assets from weak balance sheets to strong ones.
But remember, it’s not just fundamentals that drive stocks and markets but the relationship between fundamentals and expectations, and investors expect that COVID-19 crisis is not nearing its end. Investors continue to flee to safe havens: the gold price increases 0.2 percent to $ 1,700 per ounce .
In the midst of the corona crisis, consumer prices have fallen more than they have since the 2008 financial crisis. The cost of living decreased 0.8 percent in April compared to the previous month. The main reason for the price slide was the drastic decline in demand for petrol and services, including flights, given the contact restrictions. Compared to April 2019, consumer prices rose 0.3 percent after the inflation rate in March was still 1.5 percent.
There may be a few more months of pain to undergo, which may leave many investors unwilling to keep coming back to the Nasdaq trough. To some extent, that kind of contempt for stocks is the needed component that has been lacking as everyone seeks evidence of a market bottom.