The recent rallies on the Dow (^DJI) and S&P 500 (^GSPC) have some investors wondering if the worst of the market declines amid the COVID-19 pandemic are over. The Dow, which rose more than 1100 points on Monday, is trading around 20% above its’ 52-week intraday low from March. The S&P 500 is up around 16% from its’ March 23rd low.
But Matt Maley, chief market strategist at Miller Tabak, thinks another pullback could be lurking. “This is more a bear market trap. I just think we’ve had a first period of liquidation. But I think we could have more of it,” he told Yahoo Finance.
“We’re in a de-risking process and now we have to have the companies, which have loaded up to the gills in terms of debt over the last 12 years,” said Maley. “ As they de-risk and deleverage themselves, that is going to keep the economy from picking back up the way it did following the 2018 deep correction.”
Earnings season for the first quarter start next week with little visibility ahead. Goldman Sachs, with one of the most bearish forecasts, predicts earnings per share (EPS) in 2020 to plunge around 33% compared to 2019.
Maley notes company guidance will be much tougher to define this time around. “Earnings are secondary right now to investor confidence. Before we really get that, we’re going to have to see this coronavirus calm down quite a bit,” he added.
"Citi says global earnings may fall 50% and stock prices could then drop by the same amount" t.co/OdDM8dDuTb
— Jeff Lee (@JeffLee2020) April 6, 2020
— Deepak K Tiwari (@dtarian04) April 6, 2020
Car sales just plunged 38%.
Just as bad as the Great Recession.
Auto retailers… another industry lining up for a government bailout. pic.twitter.com/RplMxXiD1U
— Otavio (Tavi) Costa (@TaviCosta) April 7, 2020
Vs $2.3 Trillion on Its Balance. CEO, Jamie Dimon, has perpetually bragged about its “fortress balance sheet,” has $2.3 trillion in exposure on its balance sheet and $2.9 trillion in off-balance sheet exposure.