Benefits from a Falling Market?

Weekly Market Wrap Aug 3, 2020 / Reading Time: 3 mins
By Joshua Barker Reading Time: 3 mins

First Week of August

ASX Update

The Aussie Market experienced a horror end to the week and the month, diverging away from the US futures, to the downside unfortunately – suffering its worst session in over five weeks. The ASX200 lost 123 points or 2% on Friday to close at 5,927. Making up the entire losses for the week, with the index losing 1.6% on a weekly basis. Friday’s drop also effectively wiped out the entire month of July’s gains.

The markets sold-off as Victoria recorded 627 new cases, accompanied by 8 new deaths on Friday – this after recording 723 new cases the day before. The state is now going to Stage 4 lockdowns as of midnight Sunday. In NSW, there was 23 new cases; 6 of which are related to The Apollo restaurant in Potts Point. QLD has now shut its borders to all of Sydney. Sparking fears of another nation-wide lock down.

Additionally, Trump took fire at Australia – criticising the fact that Australia ‘thought’ they had the virus handled so well but it is evident that we are not, as a second virus breaks out.

Top/Bottom Performers (in ASX200)

Top Gainers:

  • AP Eagers +12.2% (APE.AX)
  • Credit Corp +11.3% (CCP.AX)
  • GWA Group +10.9% (GWA.AX)

Top Losers:

  • IOOF Holdings -16.0% (IFL.AX)
  • Sandfire Resources -15.5% (SFR.AX)
  • IGO -15.1% (IGO.AX)

 

 



A sucessful vaccine could arrive before year-end.

Accredited researchers such as the University of Oxford, AstraZeneca Plc and a german Pfizer-BioNTech SE collaboration, are already in final-stage studies, fuelling hopes that a weapon to fight Covid-19 will be available soon. But all developers must still clear several hurdles: effectiveness of the vaccines, approval, and a major increase in manufacturing.
Worldwide supply may not reach 1 billion doses until the first quarter of 2022, forecast by Airfinity.


Globally

Wall Street closed in the green on Friday nudged by a 10% jump and a new record of Apple shares after the company reported a blowout quarter. The night before, the heavyweights outperformed in their reports with; Amazon sales soaring as the pandemic pushes online sales, Amazon numbers pushed their share price higher and Facebook reports 11% revenue growth even in these times.

For the month, the Dow gained 2.3%, the S&P 500 added 5.5% and the Nasdaq Composite climbed 6.8%. The biggest news of the week was the second-quarter GDP which plummeted 32.9% on an annualized basis.

Fitch Ratings changed on Friday 31 July 2020 the United States’ sovereign rating outlook to negative from stable and affirmed the debt grade at AAA.
The US dollar was also hit fresh 5-month lows by President Donald Trump’s idea of delaying the November presidential election.

Play of the WeekBenefit from a Falling Market?

With Covid cases ticking up locally, well beyond where they were the first time markets plummeted, many investors may be worried about another fall if a second wave of cases and lockdowns – a reasonable assumption. So, if you identify this; how can you benefit?

Betashares offer a range of products aimed to do exactly this, hedge portfolios by benefiting from the market going down, namely BEAR.AXW and BBOZ.AWX (stronger short). These products allow investors to take a position that is negatively correlated with the market that way investors don’t have to sell out of their entire portfolio and still remain less exposed to falls in the market. 

Extreme caution must be used with these products however, these positions are a trade and not an investment – therefore should only be used for the short term.

Commodities

Oil recovered from an early week sell-off to settle at $40, a third straight month of gains helped by a weaker dollar and a report from the US Energy Information Administration saying that US crude oil output tumbled by a record pace in May. In addition, investors cheered news that factory activity in China rose for the fifth month in a row. This may be short lived as OPEC+ plans to increase output by about 1.5 million barrels per day.

Gold enjoyed its best month since February 2016, having touched a record high of $1,983 on Friday as the US dollar suffered its biggest monthly drop in almost a decade.

Iron Ore continues to push marginally higher to $109US.

Looking Ahead…

The US earnings season continues next week with about a quarter of S&P 500 companies reporting second-quarter results. So far, half of US companies have reported and 82% have actually beat expectations and beat by 27% on average. This is record high numbers, thanks to pessimistic analysts – a theme that may continue through to our market as our earnings kick-off.