Sygnum Market View – 21 September 2020
Q2 earnings – impact of the crisis not as severe as expected
Most companies have now filed their financial statements for the second quarter of the year, and the full impact of the COVID-19 crisis can be assessed. Q2 was undeniably the most challenging period of the crisis with most countries in lockdown, and global travel curtailed.
However, the results have been surprising – earnings per share (EPS) for the S&P 500 fell from USD 35.5 to USD 11 in Q1 but rose to USD 17 in Q2. This is forecasted to increase to USD 28 for Q3 and reach USD 30 at the end of the year. Analysts also anticipate that a return to the pre-crisis high of USD 35.5 is possible by Q2 of 2021, reaching USD 40 by the end of 2021[1].
Looking at the data, the impact of the crisis has been much less severe than expected. Of course, some sectors have been hit harder than others – oil and gas is suffering from a drop in demand and continued oversupply which is impacting profitability. The financial sector, typically sensitive to any economic downturn, is performing comparatively well, while consumer goods and industrials are on the road to recovery. Then there are sectors such as healthcare and technology which are thriving in the current environment. Large technology companies such as the FAANG (Facebook, Apple, Amazon, Netflix, and Google) companies are currently so highly valued that there is a possibility of correction at some point.
A new standing for Bitcoin; potential for new yearly highs remain, but no decisive moves yet
The COVID-19 crisis has also resulted in a new standing for Bitcoin in the eyes of corporates and institutional investors. Fear of inflationary pressure in traditional markets have led many to search for alternative investments to put their wealth into, and Bitcoin is growingly considered a viable option. Large and highly public investments such as MicroStrategy’s USD 425 million purchase of Bitcoin support a solidifying of its place in an investment portfolio.
After a drop in early September, Bitcoin has been trading sideways with a slight upward trend currently. The market appears to be pushing the price above the resistance zone of USD 10,500 to 10,600, which would provide a buy signal, but there is no decisive movement yet. The next resistance band is at USD 11,100 to 11,200, which, if crossed, would provide a larger buy signal, potentially leading to new yearly highs. However, if Bitcoin fails to sustainably break out above USD 10,500 to 10,600, it will result in a test of the USD 10,200 support level. If this too gives way, then Bitcoin could fall back to below USD 10,000.
Promising performance in traditional and crypto markets amid uncertainty
In terms of market performance, it appears that the impact of the COVID-19 crisis has been more moderate than foreseen. However, there have been devastating consequences to both lives and livelihoods for many, with rising unemployment figures in many countries. While both traditional and crypto markets are currently performing well, the pandemic is far from over, and it is too early to determine the long-term impact and if the upward trend will continue to be sustained.
[1] https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx
Disclaimer
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