Our checklist for equities, earnings to watch and stocks that are up

Equities 6 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  Equity markets are up to as the Fed has announced open-ended buying of Treasuries and MBS which is indirectly yield curve control. In addition the German government has signed its EUR 750bn stimulus package to help the economy. But before we can get constructive on equities besides the daily ebbs and flows to news we need to see four things happen which we present in this equity update. We also highlight which earnings releases investors should watch this week and finally we look at some of the stocks that have had positive returns despite of the COVID-19 crisis. Not surprisingly we find positive stocks in pharmaceuticals and those that see rising demand on work-from-home trends.


Our optimism on Friday in our research note Have global equities turned a corner? turned out to be a bit premature although many seeds for a turnaround have been planted by policymakers. But like a river it takes time for things dumped in one end to float downstream. One of the main policy actions that’s being scoped in Europe is the idea of coronabonds (read Coronavirus Economics: The case for coronabonds) which will be joint debt issued by the EU. In general the speed of information during a severe crisis is extremely high so we encourage clients and investors to read our daily Market Quick Take.

The biggest news today is the Fed announcing that it will do open-ended Treasury and mortgage-backed securities buying in whatever amount that is needed – this is indirectly yield curve control by design in order to keep marginal cost of funding down. The German government signs off on a €750bn stimulus package to fight the economic impact from COVID-19. In addition the German government has agreed to set up a $600bn rescue fund to provide loans, guarantees and take equity stakes in hard hit companies. The reaction to these measures has been very positive across risky assets.

Four things to watch

Over the weekend we were thinking about a checklist of things we would like to see for us to be constructive on equities again.

  1. Stronghold (our dynamic asset allocation model) to add credit in a repeat of 2008 actions
  2. VIX futures term structure turning positive (Read Turning point indicators #1 – VIX futures term structure)
  3. Financials to significantly outperform utilities (read Turning point indicators #2 – Financials to utilities ratio)
  4. Clear signs of COVID-19 cases and death in the US are flattening (use worldometer for monitoring the development)

Our Stronghold model is now experiencing a market environment that is even more tough than in 2008. In the backtest simulation the market crash evolved slowly enough for the model to be ultra-defensive going into the Lehman Brothers chaos. But more importantly Stronghold was able to aggressively put on risk early on. Already by 17 April 2009 the portfolio had 48% exposure in credit and by 15 May 2009 it had increased exposure to 84%. But it started adding risk on 20 March 2009, so what we would like to see in this crisis is Stronghold to increase exposure to risky assets before we get constructive on equities.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.