Wall Street looks for light at the end of the tunnel and sees risky stocks test the lowest again

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NEW YORK (Reuters) – Wall Street analysts and investors see the risk that stocks will retest recent lows in the coming days or weeks as they worry about the spread of the virus and its impact on the economy. economy, although some occasional gleams of light at the end of the tunnel.

FILE PHOTO: The Wall Street sign is photographed at the New York Stock Exchange (NYSE) in the Manhattan neighborhood of New York, New York, United States, March 9, 2020. REUTERS / Carlo Allegri / File Photo

Major Wall Street indices fell more than 1.5% on Friday as the coronavirus brutally ended a record streak of job growth in the United States. The S&P 500 .SPX closed at 2,488.65 after rebounding around 13% from its intraday low at the end of March, although it is still down more than 26% from its record high in mid-February.

Markets have shown signs of stabilization, with investors analyzing a wide range of signals to find clues to the path they could take in the coming weeks.

Some point to softening volatility and improving liquidity in the fixed income markets, indicating that the worst of the liquidation may be over. Investor sentiment, often viewed as a negative indicator, is a signal of a possible reversal in US stocks. However, the markets remain turbulent and far from their peaks.

American surgeon Jerome Adams warned Sunday on Fox News that “this is going to be the hardest and saddest week”.

However, there have been positive signs. New York Governor Andrew Cuomo said that deaths had declined slightly from the previous day, although he warned that it was not yet clear whether the state crisis would plateau.

Online trading company CMC Markets Michael Hewson said US futures may improve on Sunday due to “lower death rates in New York” and other places . Futures contracts in the United States rose more than 1% soon after they opened on Sunday.

Here is a summary of some views from analysts and investors over the past few days:

– Julian Emanuel of US broker BTIG said in a research note on Sunday that if history is some kind of guide, he expects a “new test of March lows in April because of bad public health news and the economy should reach its parabolic peak. “

Emanuel said that part of what could make a bottom for stocks in the next few days is an awareness that the real date for the reopening of the economy is not the end of April but rather the end of May.

Emanuel added that stocks often reach “headlines, hope is scarce and strong emotions” and said that as investors, “we want to be ready for this time and we think it will happen in April “

Emanuel pointed to an “unusual phenomenon indicating systemic coverage”, saying that the S&P 500 VIX, which measures volatility, is currently superior to the Nasdaq 100 VIX, which is “generally reserved for periods of market stress”.

– Whitney Tilson, founder and CEO of Empire Financial Research, an investment news editor who previously ran the hedge fund Kase Capital, said in an email on Sunday that he thought New York City “had stopped the rapid spread of the virus around March 19, “and that the number of new cases is now declining. Tilson said the data NYC Health is releasing about new cases gives a more optimistic picture.

– Christopher Wood of Jefferies wrote in a research note dated Friday that they still expect, at a minimum, “a new test of the lowest precedent on the S&P 500”, as well as a new test of the Treasury 10-year low bond yield and forecasts that will coincide with a recovery of the US dollar.

Wood wrote that “markets are headed for the peak of bad news in Europe at the same time as the cases in Britain and America, both in terms of the virus cycle due to the failure of the earlier lockdown , continue to rise sharply, “Wood wrote. “This flow of news is likely to endanger short-term investors for understandable reasons. “

Yet Woods said that “when this spike occurs, it should generate a decent trade rally. “

Jefferies equity strategist Steven DeSanctis said in a separate note, however, that the risk of hedge fund reduction “seems to be behind us”.

– Andrew Slimmon, managing director and senior portfolio manager on all long-term equity strategies at Morgan Stanley Investment Management, wrote in an email comment Friday that he also expects a “further test down, “but said it was possible that” we won’t come back down. “

He traces three stages of the bear markets – “low panic”, “rescue rally” and “retest” and said the market is currently in the second stage. He considers financial services and consumer stocks to be particularly attractive areas.

– Brad McMillan, chief investment officer of the Commonwealth Financial Network, wrote in email comments on Friday that “April is going to be tough, with a lot of headlines – and very scary -. The market will certainly react to these stocks, so we should expect more volatility and most likely a new test of the March lows. “

– Michael Purves, of Tallbacken Capital Advisors, wrote on Friday that the VIX curve seems to reflect some high-level but significant scenarios / risks, of a slide in power outages in the United States as the incremental populations get hot, and as politics US health care is less consistent than it is in other countries.

Purves also said that there were “an ever-increasing number of second-rate impacts of this economic shutdown that may not appear for several months (risks of fiscal stimulus, food inflation, labor strikes, risk growing politics, unsuccessful restart of Asian economies, re – outbreak of Corona cases, etc.) “

Megan Davies report; Editing by Nick Zieminski and Daniel Wallis

Our standards:Principles of the Thomson Reuters Trust.

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