Stocks accelerated their losses Monday, after the losses were muted in the morning. Wall Street doesn’t know when the bear market will bottom in this unique health-driven crisis, but many say to begin bullishness.
The S&P 500, after having fallen 1% in the morning, fell as much as 4.5% Monday afternoon. The loss ended the day at 2.9% on the S&P 500.
The Federal Reserve announced it will buy as much in treasury securities as it needs to keep cash flowing though the economy and interest rates low. And it will buy as much in mortgage bonds as necessary to keep the housing financing market stable.
Investors were happy to see the troubled economy receive injections, which can’t bear much fruit until the virus ends, meaning the likely recession the country is in ends. But stock price swings had been stabilizing since Thursday. Before that day, stocks were losing or gaining 5% on most days for two weeks.
But it was when Congress, for the second straight day, couldn’t agree on a coronavirus aid bill — $2 trillion — that stocks sold off harder again.
With the S&P 500 down 33% from its all-time-high and trading at an attractive valuation level against that of the safe 10 year treasury bond (yielding 0.77%), some on Wall Street are focusing on the idea of buying more stocks now, while some are focusing on the lost day Congress had Monday.
Here’s what Wall Street thinks of the Fed, the virus and stock valuations:
Seema Shah, Chief Strategist at Principal Global Investors:
Fed stimulus is "another essential step forward in providing a floor for risk markets but, unfortunately, it is not sufficient.”
Jeff Buchbinder, Equities Strategist, LPL Financial:
“It looks like we are headed toward loans from the Fed to Main Street and direct government equity stakes for affected companies. Now it’s Congress’s turn. We hope a deal will be struck shortly after the Senate reconvenes at 1 p.m. ET today.” That was just before congress’ no-deal.
Jason Pride, Chief Investment Officer, Private Wealth at Glenmede:
"Long-term expected returns for stocks now appear unusually high relative to long-term expected returns on cash and fixed income. Such a shift in valuations and expected returns should provide a meaningful rebalancing opportunity for long-term investors able to weather the ongoing storm. But "The economic headwind will depend on the magnitude andlength of efforts required to contain the virus."
Mike Wilson, Equity Strategist, Morgan Stanley:
"With our base case now reflecting a recession, we lower our 2020 base case S&P 500 earnings per share to $142 (-13% year-over-year) and bear case to $130 (-20%). Year-end bear/base/bull targets are now 2400/2700/3000 [for the S&P 500], and in an extreme bear case we see downside to 2000, though we view this as a low probability tail risk. We expect an extraordinary policy response on both the monetary and fiscal fronts, with creative solutions to deal with an expedited labor cycle and credit crunch that end up reflating asset prices once again and maybe reviving inflation.”
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