The S&P 500 rose 31% from its closing low in March, as waves of central bank stimulus combined with fiscal measures from governments around the world reassured markets ravaged by the coronavirus pandemic. But Calvasina, head of US equity strategy at RBC, warns that there may be another step before the markets really recover.
“It is possible, though far from certain, that the S&P 500 bottomed out on March 23 due to the Fed’s unprecedented stimulus and an imminent economic downturn,” Calvasina wrote in a report on Thursday. “But valuations are tight again and investor capitulation never took place, leaving stocks vulnerable to bad news in the months to come. “
Other concerns of Calvasina include:
- Stocks likely bottomed out due to expectations of an economic downturn, but investors recently told RBC they are increasingly concerned about the long-term impact on the economy and consumers .
- Earnings per share forecasts for 2021 still seem too high, as companies say it may take some time before economic and economic conditions return to normal.
- The ratings seem high; an opportunity probably emerged on March 23 at the bottom, but “evaporated quickly”.
- The election in the United States could be a risk; Joe Biden, the likely Democratic candidate to face Donald Trump in the November race, is considered by “an increasing percentage” of investors to be “a negative result for the market”.
- The forecast for capital spending has plunged into most major surveys.
RBC has a lot of people, big investors like Stan Druckenmiller and David Tepper claiming that stocks have risen too much. David Kostin of Goldman Sachs Group Inc. forecasts a potential short-term decline in the S&P 500 to 2,400, 15% less than the last close of 2,820. In mid-April, the median end estimate for he year for the benchmark was 2,875 among the strategists followed by Bloomberg.
“The S&P 500 is currently a little above our 2020 S&P 500 end-of-year price target of 2,750,” said Calvasina. “But we don’t feel the need to take it up.”