Displaying items by tag: bear market

(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.

(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.

(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.

(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.

(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.