Displaying items by tag: bear market
Goldman Sachs put out a pretty serious statement today. The bank said the surprising and “unloved” rally since stocks bottomed in March will not continue. The bank thinks that the market has set very high expectations for the recovery, and that waters are currently troubled with China. Furthermore, the huge gains have largely been driven by 5 stocks, and their needs to be much broader-based price increases for the market to rise. This will be tricky because the other 495 stocks in the index are more economically-sensitive. “Broader participation in the rally will be needed for the aggregate S&P 500 index to climb meaningfully higher. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index”, said the bank.
FINSUM: This makes complete and total sense and helps explain why the rally has slowed in recent weeks.
Morgan Stanley put out a very direct research report this week. In it, it tells investors which stocks they definitely should not buy. The bank selected 22 “Secularly Challenged Stocks” which it says no one should own right now. Here is a selection: Alcoa, AMC Networks, Abercrombie & Fitch, CenturyLink, Macerich, Cheesecake Factory, H&R Block, Michael’s, and Molson Coors Beverage.
FINSUM: A lot of names one would expect here, but some that are a bit of a surprise. We certainly would not want to own Macerich given the state of commercial retail real estate, but CenturyLink would not seem nearly so dangerous.
The S&P 500 hit a wall last week and saw its worst performance in a couple of months. Today notwithstanding, the market could be in for another big fall, according to Barron’s. Stocks fell 2.7% and it could be a sign that a reversal is coming. According to Nomura, “If [the S&P 500] continues to fail, you’ll hear about topping patterns, lower highs, exhaustion, and a lack of momentum”.
FINSUM: So the argument here is basically “death spiral caused by attrition”, so sort of like someone pushing a boulder up a hill and when they can’t quite get it to the top, they tumble back down. We are inclined to disagree here given that the Fed is sending such strong support signals.
Data released today painted a very grim picture of the economy. The data was bad in its own right, but what was very disheartening is that it showed that one of the supposed bright spots of the economy is actually doing poorly. Retail sales fell a whopping 16.4% in April after also falling steeply in March, the worst tumble in American history. Car dealerships and gasoline, which comprise a big part of retail sales, were slaughtered. Even grocery sales—one of the areas that seemed to be doing well—dropped 13% (!). The only bright spot was ecommerce, which still only rose a little over 8%.
FINSUM: This is a pretty devastating report. The big question is whether this speaks to the state of the US consumer (which to some extent it obviously does) vs to what extent it is just a temporary fear of the virus. We think this recession is going to last until at least the end of the year.
The market has fallen a couple of sessions in a row and is looking weak today. It is sort of feeling like the decline many have been forecasting is finally grabbing hold as the reality of a long recession grips the psyche of investors. JP Morgan published an interesting report this week, saying that markets could fall significantly but that there are two divergent scenarios that could take place. In the bull case scenario, the re-opening of the economy works, with social distancing measures keeping a second wave from occurring (especially as summer arrives and holds COVID at bay). They describe the bearish scenario like this, saying “The other option is that overly complacent consumers bring down the guard too quickly, a second wave of infections hits, and the world is forced to rethink the optimistic timing of the new normal”.
FINSUM: The big question in our minds is whether a middle ground exists between these two scenarios. Maybe there are some isolated second waves with certain cities getting locked down. The market might just drift from here until the situation becomes more clear.