NASDAQ, HEALED FROM COVID-19 / AFTER THE PANIC DRIVEN SELL-OFF OF FEBRUARY-MARCH Perfect V-shaped recovery for the Nasdaq

Nasdaq Composite and Nasdaq 100, the indexes of the American technology stock exchange, recently reached historic highs, marking a perfect V-shaped market recovery, which was almost inconceivable during the February-March crash, amid the growing global number of Covid-19 cases.

From the high of February 19 to the low of March 23, the Nasdaq 100, considered a barometer for the health of the technology sector, fell almost 28%, the largest sharp decline in history in such a short period of time, with the Nasdaq Composite index following a similar path.

Since then prices have consistently gone up, with indices developing upward trends with almost no corrections, in a climate marked by fiscal and monetary stimuli of unprecedented proportions, and with the reopening of the locked down economies has taken place faster than expected.

In this context, also driven by the evolution of stocks such as Apple, Microsoft, Amazon, Facebook or Alphabet (the parent company of Google), companies which have benefited from social distancing measures imposed to limit the spread of the Covid-19 pandemic, at the end of last week Nasdaq 100 rose to an all-time high of 9,824.39 points, just like Nasdaq Composite did on the first trading day of this week.

Claudiu Cazacu, Consulting Strategist at XTB Romania, told us: "First of all, it must be said that without the huge support provided by central banks and governments, especially in the United States, where we are talking about trillions of dollars injected into the economy at an unprecedented speed, the recovery of the stock markets would probably have started much lower, the slope of the recovery would have been completely different, and the indices would not have reached the current values".

The XTB Romania analyst pointed out that the stock markets do not reflect the entire diversification of the economy. "The indices include a selection of companies and sectors, and in this case we are talking about historical highs for the Nasdaq, which is a technology exchange, a sector which has stood to gain a lot lately, at least in relative terms".

In his opinion, the current evolution of the stock markets reflects the massive economic stimulus packages, as well as the optimism regarding the control of the situation related to Covid-19, i.e. the markets do not consider that the impact will be lasting.

"Even if a second wave of the disease occurred, with possible economic lockdowns, the markets aren't betting on something severe, at least for now," said Claudiu Cazacu. "But the stock markets don't stand still, and the current image is a moving picture, never finished, except temporarily".

From his point of view, we will have the first data about the impact of the pandemic on the economy in July-August, through macroeconomic data and companies' reports for the first half of the year, but a slightly clearer picture will emerge starting in October.

"But in addition to the numbers, in order to better understand the effects and assess the pandemic in the longer term, it is absolutely necessary to put it in context, so we need reports from consulting firms, press articles, etc., to provides detailed descriptions of the existing situation", the XTB Romania analyst concluded.

Adrian Codirlaşu, the president of CFA Romania, also pointed out that the period we are going through favors technology companies, because there is and will continue to exist a great need for automation, remote communication, and they will provide the solutions.

"Also, in the United States the economic stimuli are unprecedented. If during the previous crisis the largest package was $ 800 billion, now it is throwing trillions of dollars into the economy and the markets. The United States is the only country which has a global currency, which is in demand particularly in times of crisis, and so it prints and supplies the global market, buying other goods. Which means that the American economy is favored", Adrian Codirlaşu said.

However, the president of CFA Romania pointed out that, the Nasdaq is the only one to have seen historic highs, i.e. in an American technology exchange, while in the case of European or Asian stock exchanges this did not happen, because the economic prospects are different.

"Thus, I think that for the United States there is a good chance that the recovery of the economy will be V-shaped, precisely because they can afford to "print" their way out of the crisis, and this can be seen in the stock markets. But it is possible the indices may have gone too far ahead, and it may partially be a case of the "Fear of missing out" that fueled the rise of the markets. For that reason, I do not rule out the occurrence of strong corrections, in an upward trend", Adrian Codirlaşu said.

In his opinion, there is a already a prospect for escaping the crisis in the developed countries, and a vaccine against the coronavirus will probably be available this autumn.

"It is clear that economic growth will begin in the third quarter of the year, and even if a second wave of disease occurred in winter, there will probably be more medical options and people, companies and governments will be better prepared, because they have already gone through something like that before".

However, Adrian Codirlaşu pointed out that, from his point of view, countries will emerge differently from this period of crisis.

"The United States is in the best position, but I think that the European Union will be a pleasant surprise as well, as the Euro is the second most used currency in the world after the dollar, and this time there has been an intervention through a substantial stimulus package", the analyst said.

In his opinion, the developed countries in Asia, such as Japan, South Korea or Taiwan, also have good prospects in this regard, as having already gone through the SARS epidemic (ed. note: of 2003), they have this time taken immediate action, so that they have not been affected as heavily as the United States or Europe.

"On the other hand, I think countries in South America have the worst prospects, as they have handled the situation very badly and have no financial resources. In my opinion, Brazil or Argentina are even candidates for default", the president of CFA Romania concluded.

Yesterday (June 9th), at 18:00, the indices of the US stock market continued to rise, with the Nasdaq Composite being 0.58%, while the Nasdaq 100 was up 0.57%.

In contrast, the Dow Jones Industrial Average was down 0.59%, while the S&P 500 was down 0.57%.