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Markets Mixed Monday: What Wall Street Is Saying

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Stocks and risk sentiment were mixed Monday after having a solid gain in the past week. Wall Street is now saying there are several indications of a near-term pullback before any sustained bull market, as investors generally look past what seems to be an abating coronavirus spread. 

The S&P 500 and Dow Jones Industrial Average both fell more than 1%, while the tech-heavy Nasdaq eked out a marginal gain of below 0.5%. Money fled out of the 10 year treasury bond, even with the Federal Reserve a hefty buyer. The yield rose to 0.76%. 

Still, investors were buying defensive stocks. The Dow leaders weren’t all cyclicals. Consumer staples stocks Walmart  (WMT)  and Procter and Gamble  (PG)  gained 2.9% and 1.2%, respectively. 

OPEC agreed to cut oil production by 9.7 million barrels per day, down from earlier hopes of 20 million. Investors had begun to price in the agreement las week. Crude oil fell 0.4% Monday. 

The spread of the coronavirus is decelerating in New York and possibly in the U.S. more broadly, although investors had done a lot of stock buying on that news last week, with the S&P 500 rising 5%. The benchmark index rose 11% in the pas 7 days and prices under reflect strategists current view of earnings for 2020 and 2021, contrary to what seems to be a lagging aggregate analyst estimate. 

Now, Wall Street is cautioning on the very near-term outlook for stocks. Here’s what the investment experts had to say: 

Jeff Buchbinder, Equity Strategist, LPL Financial:

"Even the lowered forecast may prove optimistic given some analysts have not adjusted numbers since mid-March in response to the lockdowns in many major cities throughout the country. The focus for investors this quarter will be on finding the floor for companies impacted by COVID-19, particularly those in the hardest-hit industries such as airlines, hotels, brick-and-mortar retail, and restaurants. That means management guidance will take on greater significance. Given recent developments, our previous “base case” $158-162 per share estimate for S&P 500 earnings in 2020 appears too optimistic. Given the likelihood that a significant portion of the US economy will be shut down for at least another month, our bear case estimate of $138-142 in S&P 500 earnings per share (EPS).” 

Mike Loewengart, Head, Investment Strategy, Etrade:

"The downside we’re seeing today shouldn’t be interpreted too concretely as a reaction to more bad news, as last week we went on a tear and giving back some of the gains isn’t unusual. But this week will be somewhat of an inkblot test in that there are multiple ways to read the state of play as earnings roll out: Is the downturn fully priced in, or is there cause for more downward pressure?"

Mike Wilson, Chief Equity Strategist, Morgan Stanley:

“Our rising increases [S&P 500 2020 price target up 3,000] are purely a reflection of higher multiples resulting from a faster an fuller normalization of the equity risk premium. If there is one lesson we have learned during the financial repression era it’s that when risk perm appears, you better take it before it quickly disappears. We lower 2020 EPS forecasts while our 2021 forecasts, the drover of stocks from here, are largely unchanged. A pullback is likely after last week’s run but we think it will be shallower (i.e. 2550 - 2560) than the consensus. Pullbacks should be bought (aka Buy the Dips)."

Tony Dwyer, Chief Market Strategist, Canaccord Genuity:

"Since the market crash the week of March 20, our view has been that following the panic low there should be a multi-week relief rally in the mid-teens range followed by a test of the panic low. We clearly had the panic low on 03/23, and now have had an extraordinary relief rally of 24% highlighted by a 12% SPX gain last week. This was the largest one-week gain since a 14% one-week jump in October 1974. That ramp from a historic oversold condition kicked off a 20% multi-week relief rally off the low, and was followed by a test to within 4% of that low."

Jason Pride, Chief Investment Officer, Private Wealth, Glenmede: 

“Much attention has been paid to whether the Coronavirus-induced economic slowdown will be V-shaped with a sharp reversal or U-shaped with a more gradual recovery. However, it is possible that the recovery in equity markets could be V-shaped regardless of how the economics play out. Investors may gain more confidence as the clouds start to clear across the economic chasm, gaining visibility to a return to profitability. That being said, it is not uncommon to see mini rallies amid ongoing bear markets, followed by further market weakness as new information causes investors to reassess their position.” 

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