The doomsayers are out there along with the scary headlines, especially after investors have already experienced the new bear market. It’s easy to shout that the situation must inevitably worsen, now that they’ve deteriorated so far and so quickly.
However, in my view, investors appear overly pessimistic and there is too much talk of doomsday outcomes and apocalyptic forecasts. I think investors should start preparing for better times ahead.
Stay alert and be ready to shift from macro, technicals, and other investment tools, and turn back to earnings revisions to help add alpha to your portfolio. Remember the old Wall Street saying, and it rings true no less now: When you should be buying, you probably won’t. There’s a lot of fear out there. Clients and subscribers can click here for the full report.
I’d like to point out in this note a few important factors:
- As we noted here last week, some key aggressive tactical indicators flashed buy last Friday, March 20, after positively inflecting from extreme negative readings…
- This historically suggests a high likelihood that a tactical trading bottom was in place that would tend to last only 1-4 weeks and fail.
- Our work suggests that it’s unlikely that all the selling pressure is over, and that volatility will begin to head back down to much lower levels. Nevertheless, the good news view is that the likelihood of significant lower lows for the S&P 500 has greatly diminished.
- Investors need to really be focusing on how they should be positioned for what we expect will be a significant improvement in equity performance for the remainder of the year.
- In thinking about a future that is not apocalyptic, we are including a list of ten 2H20 potential surprises below.
2H20 Surprises
- The S&P 500 has seen its price bottom and UST 10-yr yields have also seen their lows.
- Peak COVID-19 cases will be reached and widespread lockdowns will be done before May starts.
- A short-term medical solution comes into focus over the next month while progress made on long-term vaccine is still in the works.
- 2Q20 GDP and corporate profits are both bad, a sequential annualized decline of 5-15% and a yr/yr contraction of 25-50%, respectively, but 2H20 sees the beginning of a V-shaped economic recovery that leads to 4Q20 profits posting positive yr/yr growth.
- The S&P 500 reaches an all-time high before the year ends. Yes, that’s what I said.
- The equity market rally is led by offense, a mix of cyclicals, financials, and secular growth…
- …While the laggards are traditional defense areas including Utilities, Real Estate, and legacy Telcos.
- 10-yr yields move back over 1% and head towards pre-crisis range of 1.5-2.0%.
- The U.S. greenback, on a DXY basis, falls below 100 and settles in a range of 96-99.
- And before 2020 ends, early rumblings about rising inflation expectations during 2021 and chatter about when the Fed will start to take back their emergency policy responses.
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