Markets Grow Cautious of a Second Wave

Amid a spike in Coronavirus cases across the US and the rest of the world, market attention is likely to remain focused on the prospect of a second wave and potential lockdown measures. Even with the Fed announcing it will buy individual corporate bonds, market volatility is set to prevail.

Stocks leveraged to the reopening economy, such as airlines, leisure operators plus brick-and-mortar retailers could face some selling pressure if investors turn cautious once again. News that Apple is closing some of its stores in states with increasing COVID cases may well weigh on sentiment.

Locally, Australian manufacturing PMI data is expected to show a slight deterioration in activity for June, suggesting the bottom may be nearing. It’s likely a different story for PMI services activity, however, with data set to show further contraction.

In the US, existing home sales for May are expected to decline ~ 2% versus April. New home sales are forecast to have grown by 2%. US manufacturing and services activity is anticipated to remain in contraction during June, albeit with the decline moderating.

Durable goods orders for May are predicted to jump following near-record plunges in March and April. If orders have picked up more than expected, industrials stocks like Caterpillar (CAT) and Lockheed Martin (LMT) could find buying support.

Jobless claims will be scrutinised closely after last week’s reading fell short of the market’s estimate and losses remain stubbornly high. On the plus side, however, last week’s significantly better-than-expected retail sales for May, which grew 17%, could give rise to a surprise ‘beat’ when personal spending data is released late in the week that takes into account the reopening economy.

Elsewhere, Nike (NKE) will report its fourth quarter earnings on Thursday (US time). The company’s performance in China may have rebounded strongly after lockdowns were lifted, just as Adidas reported. However, US and European store closures will weigh heavily on revenue, margins and earnings. Nonetheless, e-commerce uptake and growth are likely to be the focal points.

Growth and Yield Portfolio Updates

Since our last update at the start of June, we have increased some of our positions, including but not limited to Adobe (ADBE), Amazon (AMZN), Facebook (FB) and Taiwan Semiconductor Manufacturing (TSM).

In the last couple weeks we have also added Docusign (DOCU) to the Growth Portfolio. The electronic agreement and signature software provider is likely to benefit from the tailwinds that continue to see business conducted virtually rather than face-to-face.

Docusign was one of our best-performers in the Growth Portfolio last week, rising 7.2%. Square (SQ) and Zoom Video (ZM) also delivered strong gains, leaping 13% and 10.9% respectively to new all-time highs. Demand for digital payment and working-from-home solutions continue to increase.

In terms of the Yield Portfolio, there were strong performances from Transurban (TCL), Baby Bunting (BBN), Challenger (CGF) and Xero (XRO).

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