September 21, 2020

Special Report: National Lockdowns And Stock Market

Special Report: National Lockdowns And Stock Market

U.S. stock futures are crashing as investors are becoming increasingly concerned about the surge in the number of coronavirus cases around the globe. Europe’s coronavirus situation is seriously deteriorating, and targeted lockdowns have now been introduced to control Covid-19. However, the more significant concern among investors and traders is that these targeted lockdowns are highly likely to be translated into mini national lockdowns to circuit break the coronavirus sequence. 

If mini national lockdowns see the daylight–a highly likely scenario given the number of deaths that are taking place and the rise in new coronavirus cases–it will be another significant blow for the global economic recovery. The coronavirus stock market rally is under a substantial threat in Europe and the U.S. That’s because major stock indices have started to break below critical price levels. 

The question that investors and traders are asking themselves is how big the influence will be on the stock market and which sectors of the economy are likely to be hit the hardest? 

Stock Market Today: The Level You Need To Keep an Eye on 

European Stocks Crashing 

In European markets, it is a real blood bath today. All major stock indices such as the DAX, CAC40, Stoxx 600, and Stoxx 50 are having the worst day since July this year. The U.K.’s FTSE 100 is getting badly battered, as investors believe that it is only a matter of time till we see a national lockdown, as targeted lockdowns are already in place. 

The DAX, the German stock index, has crossed below the 50-day moving average, and it is running towards the 100-day moving average on the daily timeframe. The U.K.’s FTSE 100 index has been the weakest link during this coronavirus stock market rally. It is already trading below all the important moving averages 50, 100 and 200-day SMA daily. I believe there is a strong chance that this index could touch the Covid-19 stock market crash level. 

Dow Jones and S&P 500 Extending Losses 

As for the U.S. stock indices, things are looking a lot murkier today. The Dow Jones Industrial Average futures have traded well over 500 points in the premarket. On the weekly timeframe, the Dow Jones has recorded three consecutive weeks of losses. The situation is very similar for the S&P 500 and for the Nasdaq Composite as well. 

Sadly, it seems like this stock market crash is still very much in its beginning stages, and there is a lot more pain to come for this coronavirus stock market rally. 

Why Is There More Pain and Stock Market Selloff To Come?

Expect more selloff as a result of the mini national lockdowns that are likely to occur not only in the U.K., Europe but also in other parts of the world. This means that while one country may be coming out of its mini-lockdown, another may just be going in.

What does this mean for economic sentiment and consumer confidence? 

Consumer confidence and economic sentiment will bear the brunt of this, and this time around, the economic conditions are already weakened, even as ample measures to ease the pain have already been used. That means there is less of a cure left to use on an already weakened patient.

Given that there may not be any cohesive response, the road to recovery may become even longer. 

Could There Be Another National Lockdown In The U.S.?

The short answer is yes, especially if coronavirus cases start to reach a critical level. Donald Trump, President of the United States, may resist the idea of another mini national lockdown, but the fact is that if the situation becomes worse, he will have to introduce this circuit breaker. 

What Is the Trade Here?

The current stock market meltdown is still in the beginning stages of the stock market crash. If national lockdowns are introduced, we could easily see the same famous trade coming back, and that is investors will favor the tech stocks, especially the likes of Zoom, Netflix, Amazon. In fact, the entire FANGMAN gang; Facebook, Apple, Netflix, Google’s Alphabet, Microsoft, Amazon, and Nvidia. 

On the short side, the entire airline sector, the hospitality sector, and the retail sector are likely to be hit again. However, it is essential to keep in mind that if a full-blown stock market crash does occur, these are sectors that one may want to pay the most attention to over the long-term, in a buying the dip scenario. Many companies are likely to be on the brink of bankruptcy, and risk to reward ratios could become immensely intriguing as contrarian investments.