From Pessimism to Optimism | Flow Traders Investment Competition | Week 28

Stocks broke two straight weeks of declines as investors looked more interested in where the global economy will move in the months ahead. This reasoning might help to explain the apparent disconnection between bad hard economic data and healthy stock market behavior. During the week, the S&P 500 gained 3.5%, which is translated into a rebound of more than 30% from its Covid-19 low and 13.5% from its record high. The Dow Jones jumped 2.5%, while the Nasdaq surged 6.0%. In the same way, the AEX index rallied 4.9%. In contrast, the Eurostoxx index dropped 0.7% while the VIX fell 32.9%.

In the U.S., the monthly jobs report for April showed that the economy lost 20.5 million jobs last month and the unemployment rate increased to 14.7%. In perspective, the US economy has never lost more than 2 million jobs in a single month. Due to the scale and speed of the job losses, some analysts see a quicker recovery as things reopen, while others predict it will take 10 to 12 years to get unemployment back to pre-pandemic levels.

Top trade negotiators for the U.S. and China talked by phone early Friday, stating their expectations to meet their obligations under the agreement on time, according to the statement from the U.S. Trade Department. The call alleviated tensions seen earlier in the week after President Trump threatened to “terminate” the pact if China failed to buy promised goods and services from the U.S.

On Sunday, Roche’s COVID-19 antibody test and Gilead’s experimental drug remdesivir received emergency use authorization from the US Federal Drug Administration. Estimated timelines for a vaccine are still gloomy, with some seeing a solution by the end of the year, while others say it cannot be reasonably expected until the end of 2021

The top court of Germany ruled that some actions taken by the Bundesbank to participate in the ECB’s bond-buying program were unconstitutional and not backed by the European Union treaty. However, it sees no breach of the prohibition of monetary financing of governments

The week ahead sees earnings season slowing down a bit. There could also be news from the White House on how the China trade deal is progressing. On the economic front, reports on consumer prices, industrial production, and retail sales will be the highlights for the U.S. Finally, hedge funds and institutional managers with control of over US$ 100 million will be required to update on holdings by May 15.

Now let’s see if this positive news also helped the investment groups in the Flow Traders Investment Competition! Clear Water Group is still leading the competition with an impressive 42.71% M2. This leaves the competition far behind, with runner-up Concordia International remaining below 10%. However, the competition is far from over, as Clear Water Groups portfolio is centered around just 2 holdings. Primus had the best week, gaining 5.15%, perhaps thanks to their more diversified portfolio with over 15 stocks? Finally, Liquid Gold’s return was most beneficial to their standings in the competition. They managed to gain 10 spots, landing in 23rd place.

Gino Beteta