COVID 19 Pandemic - Tech Stock Soars! Virus Stages a Comeback in US

Stock market around the world continue to recover and saw some gains in June with the technology sector performing the best, and that is thanks to being the primary beneficiary of the COVID-19 lock downs around the world. East Asia stock market also performed well as they are in the advance stage of re-opening, helping to revitalize their economies

COVID Resurgence in US

COVID-19 made a big comeback in the South and West coast of United States as the initial hard hit New York City has managed to control the virus with hard hitting and decisive pandemic control measures. On the other hand, southern states such as Texas and Florida, are seeing a huge surge in COVID infection rates, eclipsing the initial rates seen in New York during the peak in March. These states saw a surge due to their eagerness to re-open their economies without following proper health guidelines and refusal to mandate mask wearing. The states hit hard by the resurgence have been rolling back their opening of the economy, with a possibility of a total lock down again, risking a second hit on the economy of US if the current control measures continue to be lackluster. An interesting development is the age group of the infection for this surge of infection with the average age of infected patients to be in their 30s as compared to the 50-60s in March. Health authorities have attributed the spike due to huge social gatherings by young and healthy Americans who thinks that they have a low chance of catching the virus and even if they do, will not be life threatening.

The loss of control on the pandemic in United States will have a good chance to push the stock market back down, after making significant gains.

NASDAQ, the representative index for tech stocks has been outperforming

Biden Leads Trump by Double Digit in Polls

The mismanagement of the COVID pandemic and "Black Lives Matter" movement has damaged his standing as a strong leader. Joe Biden, the Democratic nominee has been gaining in polls with Trump having to play catch up when the US Presidential Elections swing around in November. With a resurgence of the COVID pandemic, which is not expected to be controlled for at least another 2 more months, this will further lower the chances of Trump being elected as the pandemic drags on. 

Joe Biden being elected as the president will no doubt change the direction of the country, giving it a steadier hand as opposed to the extremely volatile Trump administration. However, the Biden administration is expected to roll back the generous tax cuts and expand the healthcare system and continue the legacy of improving Obamacare. Thanks to the pandemic, healthcare concerns have jumped to the top of the concerns for most Americans.

The change of guards to the Biden administration his will probably slow down the rate of rise in the stock market as corporations will report lower profits thanks to a higher corporate tax and healthcare companies that has been profiting immensely from the high healthcare cost in United States may see their profits eroded as measures will start to be put in place to ensure that health care cost falls to help Americans afford more cost efficient healthcare. 

Portfolio Strategy

Both Cash and CPFIS portfolio rose in the month of June, but with the Cash portfolio underperforming the CPFIS portfolio. This is attributed the more tech heavy Franklin US Opportunities fund which has a significant proportion of the fund invested into tech companies while the more diversified Infinity US 500 stock index, did not perform as well because some of the more traditional companies in the S&P 500 are still pressured by the pandemic. The top performing healthcare and energy funds in the Cash portfolio also did not perform as well as they took a breather after a stellar run in the earlier months. I expect the traditional sector of the economy to gradually recover and the relatively expensive tech stock will correct as the funds rotate back to companies which has seen their stock prices pressured by the pandemic.

One of my top concern is on the healthcare fund as it might be adversely affected should the Biden administration come into power and corporate profits for healthcare providers in US will be impacted by a combination of higher tax rates and a more regulated healthcare environment in US. The rapidly rising tech stocks are also alarming as the prices have pull ahead on both the state of the economy and their corporate profits. I will probably be paring down on these two allocations as we move nearer and nearer to the Nov elections when it becomes clearer if Trump will remain in power... or not.