Displaying items by tag: recovery

(New York)

After falling nearly 3% last week markets went off like a rocket ship today. From well before the main trading open, futures had been jumping on rising optimism. The big gains seemed to be centered on three critical aspects. Firstly, the Fed made a strong statement of support for how it would continue to help the economy. Secondly, there was good news about a new potential vaccine. Thirdly, despite broad reopening across the country, there has been little sign of a “second wave”.

FINSUM: As of the time of writing, today’s gain had already exceeded last week’s losses. Is it time for another big push higher?

(New York)

A famous contrarian fund manager, Alan Lancz, put out a very interesting quote today. He said that “The next 45 days may just become the most critical period in U.S. financial history”. He argues that the manner in which the US economy is reopened will dictate the direction of the next several years of the recovery. In his view, even the best case scenario is a U-shaped recovery where it will take a long time to get back to where we were. In his words, “The much talked about ‘V’ shaped recovery is no longer in the equation because of the unprecedented combination of negatives with this crisis”.

FINSUM: We can’t help but agree. This lockdown has lasted so long—and will likely continue for a while longer—that we can’t imagine we will be back to February 2020’s economic output level until 2022.

(Chicago)

All the market focus has been on the Dow, but small caps beat the bigger index into a bear market. Even before the big falls of the last few days, the Russell was down 25%. Small companies account for about half of US economic activity and tend to feel the strongest effects when the economy falls, explaining the sharp decline. However, small caps also tend to outperform in the three months after such falls, as they also disproportionately benefit from an economic recovery.

FINSUM: Small caps were trading at all time highs right before this plunge, and as this situation begins to clear, it seems like a very good buying opportunity.

(Chicago)

Small cap stocks are starting to have their day in the sun. The Russell 200 has started to catch up to large cap indexes this autumn, and some stocks look ready to surge. The index is now up 21.2% for the year, just a few points behind the S&P 500’s 25.5%. According to Merrill Lynch, economic recoveries “tend to be the best phase for small-caps …That’s one key reason we think we could be poised for a shift from large to small”. According to a Jefferies analyst, “I think small is primed to outperform as the economy and earnings improve in 2020 … That’s going to be the whole ballgame”.

FINSUM: It is hard to imagine the US is going to enter an “economic recovery phase” at the end of a ten-year bull run, but the market’s perception of the current economy is exactly that, so these forecasts might be spot on.

(New York)

Deutsche Bank has just gone on the record with a bold prognostication. The bank says that the global economy is “bottoming out”. While that may sound grave without further context, what Deutsche actually means is that the global economy has already seen the worst of the current downturn. The bank expects that the world’s economy will be improving next year, meaning we may have finally turned the corner on slowdown fears. “Key to our optimism is that the risks of trade wars and Brexit are evolving in positive ways, and the possibility of a radical policy shift to the far left in the U.S. and the U.K. after their respective elections seems remote”, says Deutsche Bank’s research team.

FINSUM: So did we just go through a “recession” and now the economy and market are ready to turn the jets back on? Quite optimistic (especially after a 25% gain in the S&P this year), but not altogether unlikely.