What does a K-Shaped Recovery mean for CFD Traders?

k shape economic recovery
Source: https://www.fastcompany.com/90549147/forget-u-or-v-or-w-we-may-be-headed-toward-a-k-shaped-recovery

Numerous debates had emerged on the shape of the economic recovery, but the actual reality is suggesting something that few had been anticipating. More specifically, it is assumed that a “k-shaped” recovery is now in play, which means that some sectors are booming (financial industry, tech, healthcare, etc.) while others still in depressed conditions. The implications of this situation are far-reaching, but we would like to talk about CFD traders should adapt to this situation.

Blue-chip stocks still favored?

In the last article, we’ve talked about how commodities could weaken in case the US dollar will continue to rise, and so far, that had not been the case, considering financial markets had been energized by new stimulus talks in the United States. Combined with the prospects of a K-shaped recovery, blue-chip stocks are still some of the best performers, due to their massive dominance.

That does not exclude volatility and uncertainty along the way, considering the US election is near and insider buying had not picked up impulsively following the September stock market selloff. However, the stimulus will continue to aggravate the discrepancies between different sectors, contributing to new inflows in some of the larger names.

Rotation from growth to value?

Tech stocks had been the main attraction since March, managing to outperform by a large, considering most companies were able to adapt fast to pandemic conditions. However, following the tech rout, investors and CFD traders had gradually shifted their attention to value stocks. Despite rising COVID-19 cases around the world, it seems like the world had managed to learn how to deal with the virus since death rates had gone down, even though new cases continue to go up.

Diversification still required

As CFD traders, we are constantly dealing with probabilities and not certainties, which is why it would be appropriate to make sure that our market exposure is diversified. In the short-term, the risk sentiment looks upbeat, but that could change in no time due to a market mainly driven by emotions and technical changes, rather than the underlying fundamentals.

In the long run, stock markets are projected to continue to head higher as the aggressive monetary policies and fiscal stimulus will not cease even after the pandemic will be under control. The good news for CFD traders is that regardless of a K-shaped recovery, we will continue to see elevated volatility which could generate plenty of new opportunities along the way.

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