Last Wednesday, the NASDAQ got within just a few very strong sessions of reaching its all-time high. Let me repeat; it's All-Time High! Notwithstanding the much-needed pullback on Friday, how is this even possible, with millions of people out of work, most of America shut down and most people staying at home due to the coronavirus? It's a very good question, but a question that might not even matter if you're focused squarely on the stock market.
In order to grasp what is happening, and particularly why the market is benefiting, you have to almost ignore all of the reasons you could come up with as to why the market should be much lower. And you also need to grasp the enormity of the stimulus the Fed is throwing at the economy, from the billions in direct payments to individuals, to the billions going to small businesses to help them meet payroll, to the billions going to those industries in big trouble, like the airlines, and are on the brink of going out of business. They're backing corporate bonds while making sure all types of market-related assets remain liquid. And you also have to consider what Fed Chairman Jerome Powell said when he made his post-interest rate decision comments last Wednesday, which included making it crystal clear that the Fed will do WHATEVER IS NECESSARY to get us through the current and unfortunate situation. In other words, a blank check.
Now, there are a lot of analysts, gurus and even ordinary folks (like me) who are skeptical, wondering how in the world we're going to pay for all of this. And the answer is? We'll deal with it later, which seems unsatisfying, but that's the current reality.
I do want to point out - which many of you already know - that interest rates are at historical lows. In fact, look at the chart below on the 10-year Treasury Note:
You can see that the yield on the 10-year Note is currently near 60 basis points. And it dipped below 40 basis points at its recent low. That's pretty close to yielding zero. But it does point out that money is as cheap as it's ever been. And who benefits from that? Certainly companies that might need to borrow - and there are plenty of those now - and who can leverage those cheap funds to either survive or fuel greater growth.
You might also have noticed that the giants of the market, including companies like Apple (AAPL), Amazon (AMZN), Facebook (FB), Microsoft (MSFT) and NVIDIA (NVDA) have held up just fine. Why? Because they have a ton of cash, don't have to worry about the day-to-day issues that most have to and have found the coronavirus-induced stay-at-home environment suits them just fine.
In fact, at EarningsBeats.com, we have adjusted our strategy to try to take advantage of those industries and stocks that have fared the best in spite of everything spiraling around us. And it's worked out quite well, as we have turned our attention to those stocks that have the strongest Accumulation/Distribution charts. And many of those stocks come from our Strong Earnings ChartList that we are making available to anyone who subscribes to our FREE EarningsBeats Digest, which comes out every M, W and F and focuses on earnings-related topics. So if you are currently NOT an EarningsBeats Digest member, just click here to sign up and we will make sure you get a copy of our Strong Earnings ChartList. In the meantime, try to stay focused on the market action while remembering the Fed is using, and will continue to use, all of its available tools to guide us through this difficult time. In other words, Don't Fight the Fed!
At your service,
John Hopkins EarningsBeats.com