Displaying items by tag: bear market

Monday, 23 March 2020 16:07

Morgan Stanley Says 30% GDP Fall in Q2


The forecasts for growth have been reverberating through markets. When this whole crisis started, Goldman Sachs initially said there would be a 5% drop in GDP in the second quarter. Oh how delightful that sounds now. Things have escalated considerably since then. Here is a smattering of various Q2 GDP forecasts: Goldman Sachs at 24% decline, Morgan Stanley at 30%, and the St. Louis Fed at a whopping 50% decline.

FINSUM: We think it is safe to assume that the GDP decline in Q2 is going to massive. So much so that the actual figure matters much less than the pace at which the economy bounces back thereafter. Is it going to be a V-shaped recovery, or a U, or the dreaded “L-shaped” recovery?

Published in Eq: Total Market
Monday, 23 March 2020 16:07

The Worst of the Selloff Hasn’t Even Begun

(New York)

Wall Street made a grim prognostication today. The street reminded investors that so far the losses in equities have been modest compared to prior routs. The S&P 500 is down (before today) 32% since its peak. That compares to 57% during the Financial Crisis, and 49% in the Dotcom bubble. Goldman Sachs says the S&P 500 will see a 41% fall from peak to trough, while Bank of America thinks it will be 47%.

FINSUM: It is easy to imagine a couple more weeks of double digit losses before peak case-load hits and markets start to calm down. In our opinion, the rise and eventual decline in US cases will be the switch that turns markets on.

Published in Eq: Total Market
Thursday, 19 March 2020 11:24

Coronavirus Could Lead to an Economic Depression

(New York)

This week has a very worst-case-scenario vibe to it, and thus we wanted to examine what the worst economic effects of the coronavirus outbreak might be. With a recession seemingly a foregone conclusion at this point, the question on economists’ minds is whether a depression could occur. A depression is an economic contraction that lasts for a long time, as in years, not a couple quarters. Since 1854, there has been 33 recessions and only one depression—by 1933 the US economy was only half the size that it was in 1929.

FINSUM: Many factors led to that huge downturn, and it takes a perfect storm for them to lead to a depression (e.g. the Fed raising interest rates at the same time as a huge drought in the Midwest). That multitude of factors does not seem to be in place right now.

Published in Eq: Total Market

(New York)

Usually, down markets are a very good tailwind for fixed annuities. With losses mounting, the prospect of full principal protection is usually very appealing. However, something odd is happening across the market—insurers are pulling many products from the shelves. Unlike the empty shelves in your local grocery store, it is not because they are selling out, it is because insurers desperately need to reprice the products given the huge moves in interest rates and market prices, and they do not have enough capacity to do this on the fly.

FINSUM: From a buying perspective, this market is perfect for fixed index annuities. Advisors may find some very attractive offers for clients.

Published in Wealth Management
Thursday, 19 March 2020 11:21

“Hell is Coming”

(New York)

In what was one of the most emotional and scary markets-oriented interviews possibly ever, famed hedge fund manager Bill Ackman gave some very stern warnings to America yesterday. Ackman favors a complete shutdown of the US economy for 30 days, instead of a gradual rollout of measures. “America will end as we know it. I’m sorry to say so, unless we take this option”, he argues. He continued “Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown”. He further warned companies to stop buybacks because “hell is coming”.

FINSUM: Whatever you may feel about the health threat of the virus itself, the economic situation with the coronavirus has escalated so quickly that it is hard to know what forecasts are outlandish and which need to be taken seriously. What we do know is that there is no end in sight to the contain measures (and thus the economic damage), which means there is going to be a huge wave of unpaid bills by consumers and a resulting financial crunch for many companies.

Published in Eq: Total Market
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