Eq: Total Market
(New York)
Goldman Sachs has put out some very concerning forecasts this morning. The bank thinks US GDP is going to shrink massively in Q2, down 5%. Goldman also thinks the S&P 500 won’t find a floor until it hits 2,000, another ~25% below current levels. The bank also believes 50% of Americans will contract the virus and that “peak virus” will occur within 8 weeks. Despite the gloomy predictions, the bank contends the markets will recover quickly in the second half of the year, with the S&P 500 rising back to 3,200.
FINSUM: This seems like a realistically bearish call on what is happening, with a very bullish medium-term outlook. Our gut instinct is that this seems a good prediction.
(New York)
Markets are off to their worst start in recent memory. With oil having plunged 30% earlier in the day, US markets opened to a very abrupt 7% decline. The sharp plunge triggered an automatic market halt of 15 minutes. At the time of writing, the Dow is down 6.37% and the S&P 500 is down 6.19%. US Bond yields plunged too, with the 10-year Treasury at one point having a 0.43% yield. Janus Henderson summarized the markets best, saying “In just over two weeks, investor sentiment has swung from complacency to panic … What started as a virus-driven de-risking has now mutated into a broad-based, multi-asset capitulation”.
FINSUM: It is looking ever more like global central banks are going to have to step in with coordinated stimulus. That said, a virus is a unique kind of panic that cannot be instantly resolved. A recession now appears more likely than not.
(New York)
Storied research firm Bernstein Research has a recommendation for you, and it is a brave one—buy stocks. The firm says that on a tactical buying basis, it is time for investors to re-enter the market. Bernstein acknowledges that they have no idea when the coronavirus situation will clear up, but that given the general decline in indexes and that fact that sentiment has swung negative, it only makes sense to buy because the market has become too bearish.
FINSUM: We have to give Bernstein credit here for a bold call. Most analyst teams tend to hide or vacillate, but this is a strong call.
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(New York)
Charles Schwab has some advice for investors: don’t buy stocks. This is a sharp contrast to Bernstein Research (see our other story today). Schwab says the market just doesn’t have enough upside momentum yet to warrant buying the dip. The custodian says that once you get two solid up days in a row, then it is time to buy. Schwab argues that two good consecutive up days signals a shift in momentum that warrants buying, and given how down the market has been, there will still be plenty of margin to the upside.
FINSUM: We like Schwab’s call better than Bernstein’s, and given today’s performance, it also appears much more accurate.
(New York)
Markets are on a brutal run. At their peak, they were off 15% last week, and the worst news is that it is likely not over. According to Citigroup, the market is still positioned to fall considerably. Despite the big losses, futures are positioned as a net long, which means there is plenty of room for the market to fall. “There is not capitulation yet, not at all”, says Citigroup. According to the bank’s quantitative analysis team, stocks would have to fall 23% for the long bets to be cleared out. “The futures market has got less long [or positive on] equities but it’s still not short and that’s the problem”.
FINSUM: This makes pretty good sense. Markets were very overbought before the fall, and with Bernie in the lead, there is little to calm investors right now.
(Washington)
The OECD sounded a big alarm this week about the threat of coronavirus to the economy. The group of rich countries announced that coronavirus may have a devastating effect on the economy, cutting growth in half. The organization said that growth this year could shrink to 1.5% from its previous forecast of 2.9% growth. It said the outbreak and actions taken in China would cut global growth by 0.5 percentage points alone, not even factoring in the rest of the world’s outbreak and response.
FINSUM: So long as the virus keeps spreading and negative headlines keep coming, more and more economy-shrinking actions will follow. Markets will react in kind.