Wall Street banks are warning investors to brace themselves for a new wave of declines in global markets after stocks rushed back towards a bull market from the ugly falls driven by coronavirus in March.
The US benchmark S&P 500 index had jumped 2 per cent by lunchtime yesterday, placing it 20 per cent above the nadir of March 23 in a bounceback almost as intense as the sell-off it followed. But many strategists warn that while central banks and governments have taken the sting out of market disruption with their interventions, more disruption may lie ahead.
“My concern is this relief rally might not be sustainable,” said Mislav Matejka, global equity strategist at JPMorgan.
Goldman Sachs and Citigroup have also urged caution, particularly as companies absorb the scale of the shock from the pandemic. “Equity markets may need to fall 50 per cent before they have priced in this year’s likely earnings drop,” Robert Buckland, head of equity strategy at Citi, said.
Goldman Sachs’ strategists said this week that equities were already pricing in a recovery in economic growth, even as the extent of the corporate shock remains unclear. “This increases the risk of disappointment near-term,” the bank added.
The rebound since late March has coincided with signs that the virus might have peaked in some of the worst-hit countries, raising hopes that lock-downs that have hit economies from the US to India could soon be lifted.
But the economic damage has already been done. Yesterday new forecasts showed the German and French economies in the grip of recession.
Salman Baig, multi-asset investment manager at Swiss fund Unigestion, believes the bounce is a “bear market rally” and sees a “decent chance” of stocks falling back to last month’s lows.
“In a couple of weeks we get corporate earnings season, and investors will get to see just how bad it will be,” he said.
Some, however, are betting that the worst is over. “You should have a buy-the-dip mentality now,” said Michael Wilson, chief US equity strategist at Morgan Stanley, arguing that a recession forged out of a public health crisis has led government and central banks to react on an unprecedented scale.
“The virus has already created the recovery through the stimulus: it is a timing question now,” he said.
Some billionaire investors have also spotted a buying opportunity. Oaktree Capital Management’s Howard Marks, a market veteran, revealed in his latest memo to clients that the investment group he founded had also started to dip back into the market, despite the risk of further declines.
“It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies. But doing so should be the investor’s greatest aspiration,” he said.
WASHINGTON (Reuters) – The pandemic sweeping the world will turn global economic growth “sharply negative” in 2020, triggering the worst fallout since the 1930s Great Depression, with only a partial recovery seen in 2021, the head of the International Monetary Fund said.
FILE PHOTO: IMF Managing Director Kristalina Georgieva speaks during a conference hosted by the Vatican on economic solidarity, at the Vatican, February 5, 2020. REUTERS/Remo Casilli IMF Managing Director Kristalina Georgieva painted a far bleaker picture of the social and economic impact of the new coronavirus than even a few weeks ago, noting governments had already undertaken fiscal stimulus measures of $8 trillion, but more would likely be needed.
She said the crisis would hit emerging markets and developing countries hardest of all, which would then need hundreds of billions of dollars in foreign aid.
“Just three months ago, we expected positive per capita income growth in over 160 of our member countries in 2020,” she said on Thursday in remarks prepared for delivery ahead of next week’s IMF and World Bank Spring Meetings.
“Today, that number has been turned on its head: we now project that over 170 countries will experience negative per capita income growth this year.”
If the pandemic faded in the second half of the year, the IMF expected a partial recovery in 2021, Georgieva said, but she warned the situation could also get worse.
“I stress there is tremendous uncertainty about the outlook: it could get worse depending on many variable factors, including the duration of the pandemic,” she said.
The IMF, which has 189 member countries, will release its detailed World Economic Outlook forecasts on Tuesday.
The novel coronavirus that emerged in China in December has raced around the globe, infecting 1.41 million people and killing 83,400, according to a Reuters tally.
Georgieva said the pandemic was hitting both rich and poor countries, but many in Africa, Asia and Latin America were at higher risk because they had weaker health systems. They were also unable to implement social distancing in their densely populated cities and poverty-stricken slums.
— Market Musings (@AndysCycles) April 8, 2020
— Elise Gould (@eliselgould) April 9, 2020
A Fed survey done in 2019H2 shows what actions small businesses would take in response to a two month revenue loss.
Via DB’s Torsten Slok pic.twitter.com/dE1f2hpg59
— Danielle DiMartino Booth (@DiMartinoBooth) April 9, 2020
Now to bad news. @realDonaldTrump has to come up w/brilliant, creative ideas like this because our economy destroyed, ruined forever. In uncharted territory. Giving money away like candy. Government now owns Fed, banks, Wall Street & Main Street. t.co/eu5ftYjAMB
— Wayne Allyn Root (@RealWayneRoot) April 9, 2020
WTO, IMF, and World Bank all pointing to early indicators of sharp economic decline. It is only matter of time until the stock market catches up to reality.
The Liquidity Crisis Is Quickly Becoming A Global Solvency Crisis As FRA/OIS, Euribor Soar