COVID-19 UPDATE: Texas reports massive >3X rise in cases, but state changed re-classification of prison cases, double counting?
There are ever growing signs of "V" across a constellation of US economic data, with today's retail sales +17.7% growth (vs +8.4% consensus), the latest example. The plurality of investors expects the US economy to stage a sluggish/lumbering recovery, and these "V-shaped" rebounds represent upside surprises. And more importantly, the stock market's +45% gain since 3/23 implied the equity markets were suggesting a vigorous recovery was underway, and now the incoming data supports this framework.
Are investors appropriately positioned for a V-shaped recovery? Empirically, nope. We discuss in this commentary, how many investors have outright gone to cash positions and those institutional investors who are "EPS-centric" remain skeptical of equity gains, since prices have moved so much faster than fundamentals have improved. Hence, most clients are either positioned for slow GDP (OW Growth) or "US is Japan" and defensively positioned (OW Growth + Defensives). If a V-shaped recovery takes root, the appropriate strategy is to OW Epicenter stocks (Discretionary, Financials, Energy and Industrials), all of which have horrifically bad trends in EPS revisions.
If there is a simple guideline for markets, we think it is simply watching this growing mountain of money market cash on the sidelines, still $4.7 trillion. Wow. Investors remain unconvinced of this rally and as we commented in several recent pieces, the pullback seen in the past week could solidify one's skepticism of this "sucker's rally" -- but I don't recall in my +27 years of equity research ever seeing a market top characterized by record cash on the sidelines. It is almost a contradictory statement.
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