A top market expert details how 6 factors that fueled the coronavirus crash will shape the stock market’s recovery

Tech is king

Stephen Lam/Reuters

Recovery role: Risky booster

Among the few sectors that largely weathered the coronavirus plunge, tech stocks have since driven major US indexes to their current levels as investors crowd into popular names including Facebook, Apple, Microsoft, and Google. The firms’ strong performance will likely continue, Shah said, with the pandemic speeding up society’s transition to remote work.

The tech-led rally comes with its risks, however. Investor concentration in tech mega-caps was elevated before the coronavirus outbreak, and inflows fueled by stay-at-home plays increase the risk of a highly uneven market. If a major tech name falters, it could have collateral effects on the entire market, Shah warned.

“Even tech giants aren’t fully immune to the negative impact of COVID-19, and a disappointing earnings result from any one of them risks reversing recent US equity gains,” she wrote.

In all, the strategist expects financial markets to have largely stabilized. The tech sector’s protection against the broad downturn “should contain the downside risks” from supply chain disruption and revived US-China tensions. Prices may retrace some of their gains, but a dive below late-March lows is unlikely, she said.

“At least investors can take comfort in the fact that the worst of the pandemic is likely behind us, the market bottoming process is underway, and with markets typically leading the economy, we are-plausibly-clear of the market lows,” Shah wrote.

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