After a stunning week that ended on a very disappointing note Friday, and does not look good for the opening on Monday, many investors are hoping that perhaps we are close to a bottom. It rarely happens so fast, but then, the market rarely drops almost 35% in 30 days. Across Wall Street, even some of the best equity strategists and prognosticators are giving a host of different scenarios for the coming weeks and months. One thing is for sure: They have no idea what actually may happen, as we are in very uncharted territory.
Barry Bannister, the well-respected equity strategist from Stifel, made the positive case late last week that it is possible we could see a relief rally that carries the S&P 500 back to the 2,750 level by the end of April. That compares with a close Friday at 2,304. This was noted in the report:
The S&P 500 has fallen below its 999-day moving average and if the COVID-19 events are a short, sharp shock as we expect (more like 1980, 1987 and 1990) and not yet a systemic and prolonged process (like 2000-02 for capex, 2008-09 for financing), then as the virus fades with warmth/humidity, an easing of government-directed extreme shut-downs and other factors, the S&P 500 should soon bounce. We note Defensive sectors relative to Cyclicals (peaking), seasonal S&P 500 returns, gold vs. Brent oil (deflation measure, peaking), the bottom for the U.S. 10Y yield and consider our general antipathy toward mass hysteria from the first virus of the internet / social-media / sensationalized-news / extreme-populist era, and we forecast a relief rally.
Bannister, like many across Wall Street, noted that late in the week all assets started to be sold, as managers desperately looked to raise cash for redemptions, margin calls, overall liquidity and a host of other reasons. Treasury bonds, gold, consumer staples and utilities all saw selling pressure, as the need to raise cash literally forced the hands of many managers.
In an interesting turn of events, leveraged closed-end bond funds, convertible funds, buy-write funds and many others rallied Thursday and Friday after posting staggering losses. The combination of the need to raise cash, in tandem with obvious short-selling turned on a dime, and many funds rallied as much as 20% over a two-day period.
Many across Wall Street have suggested that the 2,300 to 2,400 level on the S&P 500 could be a range wherein a bottom could be put. In fact, in the Stifel report, there were some long-term trends that also provided a degree of potential, if they indeed stayed the course. This was one of the items they discussed:
If the S&P 500 remains at the current ~2,400 to Apr-30, 2020, it would break down far below a +/-1.5 sigma seasonal trend for the performance of the S&P 500 in November-to-April relative to May-to-October that has existed on an uninterrupted basis for 70 years, a period of major oil shocks, market crashes, bubbles bursting, global financial crises and concomitant deep recessions, and we do not expect that break-down to occur.
Interestingly enough, should the market have a snapback rally back to the 3,000 level at any point in 2020 or thereabouts, the Stifel team actually suggested lightening positions at that level. One would suspect that every battered investor would gladly like a selling opportunity at 3,000 again.
Given the carnage, the Stifel analysts also feel that we could have a long road to travel before we get back to the levels we were trading at in February. They see that it potentially could take until March of 2025 to get to 3,150 again on the S&P 500.
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