Stock gains accelerated midday Tuesday, as investors buy up stocks amid growing signs of a return to normal life and earnings beyond 2020, even as near-term fundamentals may worsen from current estimates.
All three major U.S. indices rose Tuesday, with the S&P 500 up 2.67%. Importantly, the 10 year treasury yield fell to 0.73% a sign that some investors are still buying the safe bond. The Federal Reserve is also a big buyer, keeping interest rates low.
Bank earnings from JPMorgan (JPM) - Get Report and Wells Fargo (WFC) - Get Report were mixed to negative. Strong loan volumes saw revenues through to descent levels, while loan loss provision expenses for both banks jumped year-over-year. That number was a five-fold increase for Wells Fargo and a 22% jump for JPM. JPM and Wells Fargo were down 2.15% and 3.4%, respectively.
But investors see a light at the end of the tunnel, as the Coronavirus spread abates globally. A slower-than-expected decrease in Chinese exports, the potential end of lockdown in May and added liquidity from central banks and governments all support economic demand and a rebound to earnings growth in 2021.
Many have said that, as earnings per share estimates from company analysts have fallen 12% year-to-date, stocks are bound to fall more to reflect what really could be a 25% or more fall in estimates. Now, the average stock on the S&P 500 trades at 18.8 times expected 2020 EPS, a rich multiple for the beginning of a recession, albeit likely a quick one.
CLS Investment’s Chief Investment Officer, Marc Pfeffer told TheStreet that investors are looking past what will ben ugly 2020 for companies and the economy, that the market is so forward looking that stock prices may overprice near-term fundamentals and then remain “range-bound” until fundamentals catch up.
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