Hello, I'm Linda Duessel, Senior Equity Strategist at Federated Hermes.
What can investors expect in the coming months?
The virus is going to decide the answer to that question. Now, obviously in an economic recession, and we, none of us know how long this will last. You know the stock market and its movement, its returns are based on the earnings of corporate America and as we prepare ourselves to hear from the corporations around America and how they did in the first quarter of this year and how they're doing in this second quarter, probably very many of them will say, 'We have no guidance for you.' The stock market looks forward into guidance. With no guidance, this will, we should expect a volatile stock market in through the next number of months. Volatile stock markets, tough for investor stomachs, but this is when long term investors in particular you get some of your very best values.
That's when stocks go on sale and a long term investor knows that we are going to get out of this but volatility should be expected. We remember that we had a very, very tough pullback, very sharp pullback that gave us from a record high on February 19th to the bottom in this cycle as quickly as March 23rd and history says when you have a bear market like that, especially sharp one, you should expect to test that again. We might see volatility, we might see stocks going down through bouncing around in the number of months and we just need to expect such a thing and keep our powder dry, take advantage of those sales when they come.
Will the recovery be more favorable to growth or value stocks?
Once again, the virus is going to decide the answer to this question because the stock market in coming out of a recession historically, will go back to the value stocks, the cyclical stocks, the stocks that represent a new cycle is starting in the economy is getting stronger again. So those financial shares, those materials and industrial shares will do well, if coming out of an economic recession. If this economic recession is going to last longer, maybe not be so very, very deep, then the growth sectors of the economy that have been working really for the past 10, 12 years, probably continue to do so because growth companies can continue on growing in almost any economic environment, the faster growth very, very exciting the tech stocks, the biotech stocks, which are really, which have really come into this situation in a very strong place.
We have never seen from two sectors like this, any sectors in the economy, such very strong cash flows, such very strong margins in their businesses and this is showing them that it's taking them through that has helped them to not decline as much in the bear market and these companies well they'll be there all along, really. You think about the advancements in biotechnology and such, they'll be there all along and particularly as we remember we're in an economic recession now, for however long it lasts, just that value sectors of the market that are more defensive. Think about your utility stocks, your telecommunication stocks, your pharmaceutical companies, these companies that just carry on through thick and thin and give you a handsome dividend, they'll serve as well I believe, as we make our way through and try to see how long this must last.
Disclosure: Views are as of April 14, 2020 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. There are no guarantees that dividend paying stocks will continue to pay dividends. In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks. Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Value stocks may lag growth stocks in performance, particularly in late stages of a market advance. Federated Equity Management Company of Pennsylvania. 20-30142 (4/20)