The tech sector, once the darling of the market, is now leading the decline, dragging the Nasdaq 100 (QQQ) into a 10% correction. With the Magnificent 7 reporting their earnings—except for Nvidia—the market’s harsh reality is becoming evident. The growth that justified sky-high valuations just weeks ago is no longer there, and even Warren Buffett’s decision to halve his Apple stake has added fuel to the fire.

But amid this turmoil, a critical question looms: Is this a bear market or a fleeting correction? While some economic indicators flash warning signs, others suggest that this might just be another blip—a buying opportunity in disguise. In today’s edition of The Market Pulse, we’ll go into the current market dynamics, explore what lessons can be learned, and help you Be Smarter This Week with insights from our This Week I Learned section.

This Week I Learned…

Understanding Market Corrections: What You Didn’t Know

This week, let’s unpack something that’s been on everyone’s mind: market corrections. When we hear terms like “bear market” or “market correction,” they often come with a sense of impending doom. However, not all corrections lead to a bear market.

A market correction is typically defined as a decline of 10% or more in a stock index from its recent peak. It’s a natural part of the market cycle and happens on average about once a year. But here’s what you might not know: Corrections can actually be healthy for the market. They prevent bubbles by allowing stocks to retreat from overvalued levels, providing opportunities for investors to buy quality stocks at lower prices.

The current decline in the tech sector, for instance, while unsettling, could be setting the stage for future gains. Corrections help realign stock prices with their fundamental values, and while they can be painful in the short term, they often pave the way for a more sustainable rally in the long term.

So, this week, you can say, “This week I learned that market corrections, though uncomfortable, are often necessary and can present buying opportunities for those with a long-term view.”

The Fun Corner

A Bear-y Good Laugh

Why did the investor break up with the stock market?

Because it had too many bear hugs and not enough bull runs!

In this market blood bath, sometimes it’s good to take a step back and find a bit of humor in the situation. After all, the market has its ups and downs, and while a bear market can be intimidating, it’s all part of the investing journey. Remember, even the biggest market bulls need to dodge a bear or two along the way!

Is This the Bear Market They Have Been Talking About?

The major market averages, particularly the tech-heavy Nasdaq, are experiencing a notable pullback, raising the question: Are we in the early stages of a bear market? The sell-off, which began as a reaction to inflation fears and the prospect of higher interest rates, has now transitioned to concerns over a potential recession. The Federal Reserve’s actions—or inactions—are under intense scrutiny, with some investors worried that the central bank may have waited too long to pivot from its tightening stance.

In this environment, the tech sector has taken a significant hit, with the Nasdaq 100 correcting by 10%. The “Magnificent 7” tech giants, who led the market to new highs earlier this year, are now dragging it down. Investor sentiment has soured, particularly after Warren Buffett’s Berkshire Hathaway reduced its stake in Apple, signaling a shift in confidence.

But is this truly the onset of a bear market? Historically, bear markets are characterized by declines of 20% or more, often driven by deteriorating economic conditions. While the economy shows signs of slowing, with job gains moderating and concerns about a recession on the rise, the overall economic data suggests that we may be in a mid-cycle slowdown rather than a full-blown recession.

Market corrections, like the one we’re witnessing, are part of the natural market cycle. They often shake out weaker hands and set the stage for the next leg up. The current pullback could be a buying opportunity, especially if the Fed signals a shift in policy that reassures markets.

For now, it’s crucial to stay vigilant, assess your portfolio, and consider whether this downturn offers opportunities to pick up quality assets at a discount. After all, in every market cycle, there are moments that define long-term performance. This could be one of them.

The Last Say

Is It Really a Bear, or Just a Growl?

As we wrap up this edition of The Market Pulse, we find ourselves at a pivotal juncture. The market is sending mixed signals—technology stocks are in correction territory, recession fears are mounting, and yet, opportunities still abound. Whether this is the start of a bear market or just a temporary setback is up for debate, but one thing is clear: Investor sentiment is fragile.

This week, we’ve explored the intricacies of market corrections, understanding that they are not only common but also necessary for a healthy market. We’ve seen how the tech sector, once untouchable, is now leading the decline, reminding us of the cyclical nature of the market.

As we look ahead, the key will be watching the Fed’s next moves and how the broader economy reacts. The possibility of rate cuts could either rejuvenate the market or confirm the recession fears that have been looming for months. Either way, staying informed and prepared will be your best strategy in navigating these uncertain times.

Stay tuned for the next edition of The Market Pulse where we’ll continue to dissect market trends and provide you with the insights needed to stay ahead in this volatile environment. Until then, keep a close eye on the data, and remember, whether it’s a bear market or just a growl, informed decisions are your best defense.

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While the energy industry is being forced to completely reinvent itself, with renewables coming out on top and diversification the new name of the game, and while travel and tourism segments aren’t likely to recover anytime soon, what happens if there’s yet another lockdown?

The investment thesis has already changed irreversibly, and 5 sectors are soaring. In the event of another lockdown, those same sectors will solidify their victories, while some sub-sectors that were still behind will catch up for the second rally.  

#1 Biopharma and The COVID Gold Mine

For the foreseeable future, the biopharma sector will be completely consumed by a high-stakes game over the development of treatments and a vaccine for COVID-19. It’s a no-holds-barred game that is geopolitical at its most vicious level. 

Indeed, stocks of companies in the race to develop Covid-19 vaccines or drugs soared over 470% from January 2020 to July 2020. 

Source: Graffiti

A handful of biopharma stocks have soared beyond imagination in 2020, including Vaxart Inc. (NASDAQ:VXRT), which enjoyed a boost of over 2,000% in the first and second quarters of 2020.

Sorrento Therapeutics (NASDAQ:SRNE) saw YTD returns from January-July of nearly 140%, with the biggest boost coming after an in vitro assay for its COVIDTRAP vaccine was able to “completely inhibit” the ability of the coronavirus to infect cell cultures at low concentrations.

And it’s not just about a COVID vaccine. The pandemic has given telemedicine a decisive boost as the “new normal” in healthcare. A case in point is Teladoc Health (NYSE:TDOC), a telemedicine and virtual health care company, which managed to rack up gains of over 173% between January and July 2020. 

#2 Work From Home–Forever

One of the biggest lifestyle shifts forced by the pandemic has been the move to remote work. Many businesses are now allowing their employees to telecommute and work from home in a bid to enhance social distancing and minimize chances at infection.

Videotelephony and online chat services company Zoom Video Communications Inc. (NASDAQ:ZM) has emerged as the biggest winner here with its stock surging over 300% in the first and second quarters of 2020. 

Now, Zoom is a household name. In December 2019, it had ~10 million active users. By April 2020, the company reported 300 million daily meeting participants.

It’s not without competitors because this is now a high-demand segment. 

By April 2020, networking company Cisco Inc. (NASDAQ:CSCO) had 300 million Webex users, while Alphabet Inc.’s (NASDAQ:GOOG) Google Meet was adding 3 million users per day and boasted over 100 million by July 2020. Not to be left out of the game, Microsoft Inc. (NASDAQ:MSFT) said in April 2020 that its Teams service recorded robust 70% growth in the number of daily active users (DAU) in a single month to 75 million.

However, unlike Zoom, these are just auxiliary businesses for these tech giants and might therefore not readily drive stock performance.

Other remote communication stocks set to rise even further include business messaging platform Slack Technologies (NYSE:WORK), which saw YTD (January-July 2020) gains of over 50%. 

#3 Streaming: The Final Push for Entertainment

With social distancing in effect, people who get their daily dopamine fix through entertainment have to mostly do at home. As a result, streaming services are booming and will continue to do so.

Netflix Inc. (NASDAQ:NFLX) is the indisputable leader in the space, gaining nearly 70% in the first two quarters of 2020, with analysts exceedingly bullish on the future. Streaming platform Roku Inc.(NASDAQ:ROKU) is also expected to continue tearing up YTD figures going forward in the “new normal”, and Amazon Inc.’s (NASDAQ:AMZN) Prime Video service is set for blockbuster performance, having seen a nearly 70% surge in subscribers for the first half of 2020. 

Video gaming companies are also doing roaring business with Americans spending more time on their consoles. Investors are all over Activision Blizzard (NASDAQ:ATVI), the maker of massively popular video games such as Call of Duty, Electronic Arts (NASDAQ:EA),Take-Two Interactive Software(NASDAQ:TTWO) and Zynga Inc. (NASDAQ:ZNGA).

Meanwhile, with gyms featuring as a dangerous venue for the spread of disease, makers of home exercise equipment Peloton Interactive (NASDAQ:PTON) and Nautilus Inc. (NYSE:NLS) have surged and will be direct beneficiaries of another pandemic lockdown. 

#4 eCommerce: Now It’s a Habit

Online shopping hasn’t just soared in the pandemic—it’s breached unthinkable new thresholds. Even without another lockdown it’s set to continue making massive gains because shoppers get used to the convenience. 

But more than that, a new age group—45 and older—has latched onto the practice where they resisted prior to the pandemic. That fact adds millions of new ecommerce participants who very likely won’t give up the habit even once we’re COVID-free.  

Again, Amazon Inc.—the ironman of ecommerce even before the pandemic—saw its stock soar over 70% in the first half of 2020. Other giants to keep an eye on include eBay Inc. (NASDAQ:EBAY) and online payment darling PayPal Holdings (NASDAQ:PYPL), is up 64.93% over the timeframe—both of which are expected to continue to rival Amazon in terms of stock boosts. In the event of another lockdown, these stocks will soar even further, but they may continue on their upward trend regardless.

#5 Information Technology: The Backbone of It All

Always the quintessential all-weather sector play, IT is set to continue to lead all 11 sectors of the U.S. stock market, with FAANG stocks—Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon, Netflix and Alphabet–seriously sharpening their incisors. 

But looking slightly below the obvious surface here, a pandemic lockdown won’t just push Apple devices sales for stay-at-home work and entertainment, it will push sales of software and hardware. 

Chip-manufacturers such as Nvidia Corp (NASDAQ:NVDA), Micron Technology (NASDAQ:MU) and Advanced Micro Devices (NASDAQ:AMD) will soar along with them—even if they’ve been playing catchup so far. 

Chips are where investors can get in on the rally if they missed it earlier in 2020 because they’re part of a broader trend. 

As Gina Sanchez, CEO of Chantico Global told CNBC recently, “The trend towards remote working, the revamping and revisiting of business continuity plans, the push towards 5G, all of that has played into the hands of semis stocks.”

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