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2 Reasons Spiking COVID-19 Cases Doesn't Mean You Should Be Dumping Stocks

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2 Reasons Spiking COVID-19 Cases Doesn't Mean You Should Be Dumping Stocks

The U.S. is now recording record daily COVID-19 infections, and eight different states just announced new one-day highs in cases.

However, the SPDR S&P 500 ETF Trust (NYSE: SPY) just finished its best quarter in decades, and Tom Essaye, founder of Sevens Report Research, said there are two reasons why investors should be too concerned about spiking coronavirus cases.

Reasons Not To Sell Stocks

The first reason Essaye says investors shouldn’t be dumping stocks as coronavirus cases rise is because another large-scale economic shutdown likely won’t happen. He said there is simply no political will to inflict further economic damage, especially at the Federal level.

Even in individual states where reopenings have been rolled back due to rising COVID-19 cases (Florida, Texas, Arizona and California), Essaye said most areas haven’t completely shut down again.

“Unless there is a massive increase in COVID-related hospitalizations and/or ICU cases, reimplementation of economic lockdowns appears unlikely even in the hardest-hit states, and even so, they won’t be like April/May," Essaye wrote in a report.

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The second reason investors shouldn’t panic is because a worse-than-expected second wave of coronavirus infections will likely simply increase the size and scope of the government’s next stimulus action. Essaye said the biggest risk to the current market valuation isn’t COVID-19; it’s the potential removal of the aggressive federal stimulus programs.

Is The Bottom In?

But while Essaye believes the March bottom for the S&P 500 will likely hold, he said investors should be prepared for a potential correction.

“While we don’t think the increase in COVID cases will cause a material decline from here, we are sticking by our previous stance, which said that with the S&P 500 around 3.200, it was vulnerable to a 10%-15% correction from that level,” Essaye wrote.

He said S&P 500 fair value today is in the 2,800 to 3,000 range, and around 2,900 would represent a more attractive potential entry level.

Benzinga’s Take

Another silver lining to the surge in COVID-19 cases is the fact that it's coinciding with increases in national testing, and a larger percentage of new cases are occurring within a younger demographic of Americans. That demographic shift means the national death and hospitalization counts are not accelerating like they were back in April.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

 

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