COVID-19 cases may cause the S&P 500 to correct, analyst says. Buy these stocks at the next drop.


It’s a difficult start to the week for the markets. Stocks sold in Asia and Europe, and Dow industry futures fell more than 300 points, setting the tone for a turbulent day ahead.

Blame the increase in COVID-19 cases around the world and the spread of the more infectious delta variant of the coronavirus.

According to Fundstrat Global Advisors analyst Thomas Lee, what we’re seeing in the markets is a “July chop” triggered by the delta variant. Our call of the day is from Lee, who said delta variant issues could result in a 5% fix for the S&P 500 SPX,
the implementation of certain types of actions for a strong recovery until 2021.

Daily cases of COVID-19 in the United States are approaching the 30,000 mark, but there is a risk that infections will become “parabolic” with the spread of the delta variant, and reach around 100,000, Lee said.

The delta variant could create panic, as markets and investors typically focus on the number of cases rather than hospitalizations, Lee said – and up to 82 million Americans remain unvaccinated or without COVID-19 antibodies . However, hospitalizations remain low.

This delta variant has a lot of “bark” and is confusing to investors, Lee said, even though there is no sharp “bite”. This could add weight to a “July Chop” that has history on its side. Since 1928, a strong first half has led to a flat or negative month of July.

While the S&P 500 was up 0.7% in July at the end of last week, “this contradicts the violent sector rotations taking place within the broader market,” Lee said.

The Fundstrat analyst said he didn’t expect the choppy water caused by the delta variant to cause stocks to fall 10% or more, but a 5% drop for the S&P 500 is possible.

So while there is little reason to be extremely bearish – as bond spreads indicate greater stability for equities and measures of volatility do not signal broader weakness – this “vicious” correction in risk – off creates opportunities.

Lee is bullish on “epicenter” stocks – stocks of companies affected by the pandemic and expected to benefit from the reopening – such as travel, consumer discretionary, energy and basic materials. In addition, Fundstrat is overweighted on Big Tech, with like Facebook FB,
Apple AAPL,
Amazon AMZN,
Netflix NFLX,
and the owner of Google Alphabet GOOGL,
considered strong choices.

The buzz

Bill Ackman billionaire investor Bill Ackman’s blank check, the special-purpose acquisition company Pershing Square Tontine Holdings PSTH,
will not proceed with its plan to acquire 10% of the capital of Universal Music Group, held by the French media giant Vivendi VIV,
Instead, his Pershing Square Holdings group will make the investment.

On the US economic front, investors can look forward to the National Association of Home Builders Housing Market Index for July, which measures market conditions for the sale of new single-family homes.

OPEC +, the group of oil-producing countries including Russia and Saudi Arabia, agreed on Sunday to ease oil production cuts further as demand for crude continues to rise and prices soar . Production will increase by 400,000 barrels per day each month from August and eventually reverse all the brakes of the pandemic era.

Zoom is considering purchasing Five9 FIVN,
+ 0.58%
in an all-equity deal valuing the cloud contact center solutions provider at $ 14.7 billion. The acquisition is intended to help Zoom ZM,
– which has become a ubiquitous form of video communication thanks to the pandemic – to expand further into the business market.

The steps

US stocks look set for a tough day: Dow YM00 industrials futures,
fell almost 350 points while the S&P 500 ES00,
and Nasdaq NQ00,
indicated a drop in the open. Analysts note that investors are focusing on the risk to markets of increasing COVID-19 cases around the world.

Stocks tumble in Europe SXXP,



following the weakness of the Asian markets NIK,




Chart via the Wolf Street Financial Blog.

Spikes in retail sales caused by the pandemic have resulted in shortages of all kinds. Our chart of the day, via Wolf Richter of the Wolf Street Financial Blog, shows the “dire” state of inventory at auto dealerships – which, before the pandemic, accounted for more than a third of all retail inventory.

Random readings

Tour de Franks: The world’s largest cycling race was almost disrupted by a sausage truck stuck on the winding roads of Col De Romme.

Broken chain technology: Malaysian police used a giant steamroller to destroy more than 1,000 crypto asset mining rigs seized from a property designed to steal electricity.

Need to Know starts early and is updated until the opening bell, but register here to receive it once in your mailbox. The emailed version will be sent at approximately 7:30 a.m. Eastern Time.

Want more for the day ahead? Subscribe to Barron’s Daily, a morning investor briefing, featuring exclusive commentary from the editors of Barron’s and MarketWatch.


Previous US duo sentenced to jail by Tokyo court for helping Ghosn flee Japan
Next Blackbaud Releases Year 9 Trends Report on Corporate Social Responsibility and Employee Engagement