- Global stock markets suffer the worst weekly loss since the financial crisis in 2009
- Fed may cut the rates in their March meeting in a bid to support economic activity
- Microsoft, Nvidia, Adobe and Salesforce expected to outperform the rest of the stock market once it recovers from the coronavirus shock
The coronavirus outbreak has facilitated the worst stock market selloff since the global crisis in 2009. S&P 500, the benchmark index, lost more than 11% last week, hitting the lowest levels since August last year.
In Europe, German DAX closed the week 12.4% lower, while the French CAC 40 lost 11.9% and the FTSE 100, which shows 100 companies listed on the London Stock Exchange with the highest market capitalisation, contracted 11.1%.
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Some analysts have been calling for the Federal Reserves to cut interest rates to mitigate the impact of the coronavirus outbreak and protect the economy from the growing threat.
“The coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook,” said Fed Chairman Jerome Powell.
The Powell statement was perceived by investors as a hint that the Fed may cut rates at their meeting in March, with some believing that Fed will cut rates by 0.5%, double the size of the typical rate cut.
The lower interest rates are likely to help economic activity. Warren Buffett, the world’s most renowned investor, believes that the stock market will outperform bonds in the environment of low interest rates.
“What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,” said Buffett in his annual letter to Berkshire Hathaway’s shareholders.
Buffett’s sentiment has been echoed by many other investors who believe that stocks are still cheap despite the decade-long bull run. This is why last week’s selloff can actually prove to be a blessing in disguise for investors, especially if the virus outbreak slows down.
“We ultimately think it could get worse, and maybe we are still in the early innings of what could prove to be a pandemic,” says Vaselkiv bond guru Mark Vaselkik.
“High yield has held in extremely well, except energy. This tells us the market is optimistic we are going to get through this, and it won’t end up tipping economy into recession. Economies are resilient. We have been through a lot worse than the coronavirus,” he adds.
The tech industry is one of the highest yielding sectors in the entire stock market. The majority of these stocks have significantly overperformed the S&P over the past few years and are expected to recover at a faster pace than the broader market.
Here, we share a list of 4 stocks that investors can pick from in the current volatile environment on Wall Street.
Adobe is one of the best-value stocks you can own today. The company, under the leadership of Shantanu Narayen, has completely transformed itself from an old-fashioned tech company to a modern tech giant offering products from packaged software to cloud business.
The base of Adobe’s success is that its products are seen as essentials. For instance, its software products are used in the educational sector, which limits customers from switching to different suppliers due to networking opportunities.
The stock lost nearly 11% this week although it was down as much as 16% in premarket trading on Friday.
“In my view, Adobe’s the best of the cloud kings, and I like that Morgan Stanley just this morning bumped its price target from $410 to $450 in the teeth of an obvious sell-off,” said Jim Cramer, a former hedge fund manager and a co-founder of TheStreet.com.
Shares of Nvidia closed the week almost 15% lower. Its performance this week suggests the stock is holding on a bit better than some other stocks, which may translate into a faster recovery once the market starts trading with a lower degree of risk aversion.
Just two weeks ago, the tech company posted better-than-expected quarterly results, which helped the stock hit a fresh record high above $316. Looking forward, Nvidia said it expects the coronavirus outbreak to facilitate a 3% hit on its total revenue for the next quarter
“If anything, the data center will only grow as more people stay at home, and gaming is the ultimate stay-at-home entertainment,” Cramer said.
Similar to Adobe, Microsoft’s business diversification makes it more immune to potential disruptions in one of its business units. One of the key drivers behind Microsoft’s revenue is Azure, Microsoft’s cloud-based product, which lags only behind Amazon’s AWS in the context of market share.
The company warned on Wednesday that it is likely to miss its initial revenue projection for the fiscal third quarter due to coronavirus outbreak. Still, shares of the company rose around 2.5% on Friday to recover a portion of the losses and limit the weekly losses to less than 10%.
“Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our Q2 earnings call,” the company said in a statement.
Shares of Salesforce lost a bit more than 10% this week on the global markets selloff. Just nine days ago, the Salesforce stock price hit a record high after the earnings beat.
This week, the company reported that co-CEO Keith Block was stepping down. Despite the initial drop in the stock price, analysts believe that this change won’t have a great impact on the business.
“As for the stock, while Block’s departure may raise questions about keyman risk at the company, we note the bench is deep with COO Bret Taylor and Adam Selipsky, chief of Tableau, which CRM recently bought,” said Jim Cramer.
In addition, Mark Tepper, the President and CEO of Strategic Wealth Partners, called Salesforce “cheap for the growth you’re getting.”
Due to the coronavirus outbreak, the global stock market has suffered the worst selloff since the financial crisis a decade ago. Major European indexes lost more than 11% in a single week, while the US stocks took a hit in a slightly better fashion.
Still, shares of the four companies listed above are expected to recover at a faster pace than the broader market due to the fundamental strength of their business.