SPY and QQQ Tank; Opportunities Remain

U.S. stocks fell hard Friday, with the DJI on track to close out to close out its worst week and month since March, where the the ramifications of the first wave of the pandemic took place. Similarly, its peer the  SPY and QQQ fell 1.5% and 2.3% respectively. The massive drop fueled be massive COVID19 infection rates in the US, caused much concern that a February/March relapse might occur again.

The stock market recovery was mainly driven by big tech FAANG stocks. After being questioned by the senate, the big four tech stocks fell by more than 5% each. That paired with not meeting anylist expectations is a horrible combination.

While big tech has driven the U.S. stock market recovery this year, that means “when we see any disappointments on particularly high-multiple stocks, then obviously the magnitude of the downgrade or the earnings-miss becomes far greater,” said UBS strategist Nick Nelson.

Furthermore, election woes seem to pluage the financial sector with investors seeing no good possibilities in the short term. If Trump gets reelected, its unlikely that he will get COVID under control, which would only further exacerbate the aforementioned concerns that a March relapse could be seen again. This would particularly hit the financial industry hard, with banks like Goldman Sachs  (NYSE: GS) already down 25% YTD.

Biden on the other hand seems eager to increase corporate taxes and tackle ‘creative financial structuring’ through policies like GILTI. That coupled with the fact that he plans to have a capital gains tax of 39%, will adversely impact the stock market as a whole but specifically commercial banks.

That given, there are still a few opportunities in the midst of the pandemic. The first being Apple and the second being Nextera Energy.

Apple

Apple Inc (NASDAQ: AAPL) fell more than 5%  once news that quarterly iPhone sales fell from a year earlier after a delay in the launch of its newly unveiled flagships. Although revenue fell 21% in Q3, this can be mostly be attributed to the drop in 29% drop in Chinese iPhone sales caused by the delay in release.  Apple and telcoms are betting big on the 5G enabled iPhones this year to spark a huge upgrade cycle. Consumer spending has been steadily increasing in Apple’s key regions, including China and the U.S and it is an almost certainty that Apple will be able to match Wall Street’s expectations of sales come holiday time in Q4.  

Nextera Energy Partners

NextEra Energy participates in the acquisition, management, and ownership of contracted clean energy projects with long-term stable cash flows. It owns interests in wind and solar projects in North America. NEPs investing strategy has allowed it to recover fully from the crisis, some 7% up YTD. Despite who wins the elections in November, renewable energy is our unavoidable the future. Solar particularly has become exceptionally cheap given, now cheaper than some fossil fuels. NEPs projects show great signs of being able to capitalize on that trend. Come November, regardless of who wins, this sector will continue to thrive.

Although there are probably countless of opportunities in the market now, few have the risk adjusted returns that Apple and Nextera Energy have. Furthermore, both in the medium term will be relatively unaffected by who wins the election.