In terms of sector selection, and we noted the Stifel reflation candidates above, the firm feels that the defensive/cyclicals that led as the market went through the 30-day trading free fall that peaked near the end of March should be avoided now. Consumer staples, utilities and the like are not the place for investors looking for alpha over the summer to be positioned.
With the stock market always operating as a forward-looking vehicle, the analysts also note that the surge higher in the S&P 500 closing above the massive overhead resistance at the 3,000 level this week should bode well for investors, and they noted this:
The S&P 500 crossed above both the 50-day moving average (dma) and 200dma on 5/26/2020, which historically signals a price gain of about 8% in the following 3 months; in this case, that would be 3,250 for the S&P 500 by the end of Aug-2020 estimated.
They also said this when discussing the wildcard, which remains the COVID-19 pandemic:
U.S. COVID-19 attributed deaths appear to have peaked this season in April 2020 and we see close to zero COVID-19 attributed U.S. deaths by the end of June-2020; although that is positive, we find the government (and media) reaction to COVID-19 to be difficult to forecast / heavily politicized with unpredictable economic effects.
Needless to say, earnings for the S&P 500 will be horrendous this year. The Stifel forecast is for $109 per share, and that compares to the higher Wall Street consensus of $111. The analysts see 2021 earnings at $149, which is again below the more aggressive Wall Street figure of $163.
It should also be noted that the sectors the firm favors going forward, especially financials and energy, have been hammered and have underperformed during the recent rally. However, against the backdrop of an improving and opening-up economy, they could benefit the most, and perhaps offer the best risk/reward and upside potential.
For many Wall Street salespeople and traders, there was always a joke that went somewhat like, “In my next life I want to be either a stock analyst or strategist or a weather person on TV.“ The gist of the joke was that if they are wrong they just make new predictions the next day. That is not the case this year at Stifel.
Bannister and his staff made one of the most remarkable market calls in decades at a time when there were zero bids across Wall Street, and everything, including gold and Treasury bonds, was being sold to raise much-needed cash and liquidity. Then they doubled down when things again looked shaky and knocked another one right out of the ballpark. Somewhere Baron Von Rothschild was smiling.
While the Stifel team used years of historical data and research data to reference and back up their call, they had to use something else that many on Wall Street are reluctant to use. That was the courage to publish when the proverbial baby was being tossed out with the bathwater, and the market was literally in one of the worst free falls ever. That is something few on Wall Street have ever done, now or in the past. Will they be remembered for this great call? That is a question to pose to Elaine Garzarelli perhaps.