Counterintuitive

By Hoda Mehr Fri, Apr 17, 2020

Hey Scoopers,

In a recent but counterintuitive tradition of the stock market, all three indices finished Thursday in the green despite another staggering job loss report. — More on that in the “Overall Market” section.

Beyond the overall market, investors continued to buy the stay-at-home stocks, and sell shares of the real estate trusts (REITs) with exposure to the commercial real estate market. — More on that in the “What’s Up?” and “What’s Down?” sections.

Oh, by the way, why do investors keep buying up stocks despite a clear disruption in the global economy? — More on that in the “Water Cooler” section.

But, first, here is a recap of what happened in the market yesterday:

Market Recap

• U.S. markets: All three indices finished Thursday in the green. Scroll down to the “Overall Market” section to read more.
• Cryptocurrency: Bitcoin’s price is also pumped up to above $7,000 per coin as some analysts believe the Fed’s quantitative easing (QE) has a positive impact on Bitcoin too.

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The Counterintuitive Market

With the new jobless claims reported on Thursday, the number of unemployed workforce in the U.S. climbed to more than 22 million. Intellectually, it is counterintuitive to see the upward movement of the stock market every Thursday that the new unemployment data is reported. Investors expect bad news up until Thursday, and when the new numbers are reported, they go back to the business of buying stocks.

The upward movement continued in the afternoon and into the stocks’ futures market. The excitement was partially due to early signs of success of the Remdesivir drug by Gilead (Ticker: GILD) in treating Coronavirus patients with severe symptoms in a trial in Chicago. Although, there is no guarantee that the drug can end up being approved as a COVID-19 treatment, however, as always, Wall Street loves any good news it can get its hand on to trade.

Stay-At-Home Stocks Are Winning.

So, what happened?

Shares of Roku (Ticker: ROKU) were up more than 14% on Thursday. Earlier in April, the stock price was hammered to the low of $81 per share. Investors were concerned about the possibility of a drop in advertising spend amidst COVID-19 economic slowdown. Despite such concerns, analysts from Berenberg started their coverage of the company with a Buy rating and gave investors another nod of approval that the so-called stay-at-home stocks, such as Roku, will be the winners of the COVID-19 era.

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Commercial REITs Are Losing.

So, what happened?

Shares of Simon Property Group (Ticker: SPG) and Kimco Realty Corp (Ticker: KIM) were down by more than 11% and 9% on Thursday, respectively. These real estate income trusts have significant exposure to the commercial real estate market, especially retail commercial real estate such as shopping malls. The retail industry was already going through the digitalization apocalypse. COVID-19 is yet again, another doomsday scenario that is threatening the future of retail. Road to recovery for these stocks will be long and arduous, and their typically high dividend yield will be under constant scrutiny until their commercial tenants can resume paying their rents and life can go back to normal, if it ever does.

Can The Market Continue To Go Up?

So what happened here?

Everyone has been wondering whether the market can continue its seemingly irrational behavior? People are asking whether the market can keep going up while there is a clear disruption in global production and consumption.

The answer to the question is rather complex. However, there is an underlying logic behind the stock market’s upward movement. Fundamentally, success in investing is about buying things at a better price compared to the estimated fair value of that asset. And, right now, there are less overvalued stocks floating around compared to a few weeks ago. Take a look at the image below that shows the distribution of stocks by their estimated valuation between February 2020 and April 2020.

(Source: Stock Card Blog

Combine the better valuations with the availability of cash, thanks to all the stimulus packages offered by Congress and the Fed, and the upward movement is not too surprising. As long as there is liquidity and stocks are hovering in a relatively fair price range (even if they are not deeply discounted), the chances are that the stock market continues to go up.

About the Author

The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card