Rallying Market Makes a Mockery of Every Effort to Forecast It
Rallying Market Makes a Mockery of Every Effort to Forecast It
(Bloomberg) -- For any forecaster thinking of going public with a view on stocks, some advice: proceed with caution.
Dizzying swings are torching Wall Street predictions. In the latest, a two-day surge in futures is poised to send the S&P 500 up 20% from its March 23 low, pulling the gauge out of the bear market it reached March 12, at least technically. MSCI’s broadest measure of global shares may do the same.
Pity anyone trying to stay on top of it. Wall Street strategists have revised and amended forecasts, all but helpless to value companies whose staff and customers have been ordered to stay home, or handicap the outbreak itself. Their views run the gamut from optimistic to dour -- at least among those who haven’t given up.
“I don’t think there is any edge anybody can have in predicting. This is one situation even the most senior analysts have said, ‘I have no model, I have no insight in what could turn the market from here,’” said Michael Antonelli, managing director and market strategist at Baird. “Forecasts are just all over the place -- it’s just outright throwing a dart.”
The volatility has made quick work of targets predicting levels nine months out. With such uncertainty, it’s not uncommon for analysts at the same shop to be at odds with one another.
Take JPMorgan Chase & Co. in just the past 72 hours. Technical strategists suggested a slowdown in new cases could put a floor under stocks. The bank’s global equity strategist warned the U.S. market had yet to reach a bottom, indicating deep losses ahead. Then Jamie Dimon weighed in, predicting a downturn that mirrors the 2008 recession.
Each view had an echo somewhere else. Julian Emanuel at BTIG expects the March lows to be tested as bad health and economic news spikes.
Mike Wilson of Morgan Stanley was once squarely in the bearish camp. These days, he’s more positive. Stocks won’t retest lows nor is this period the start of a depression, the firm’s chief U.S. equity strategist wrote.
“What we’re trying to do now is given all this, what are these stocks actually worth?,” JJ Kinahan, chief market strategist at TD Ameritrade, said by phone. “That’s actually why there’s so much volatility -- you’re trying to basically reprice the entire market at once on an unknown situation where we don’t know where the end is.”
A handful of strategists have recognized the futility in making a call. Tony Dwyer at Canaccord Genuity, who says the bottom process will take more time because the economy could remain shuttered through April, recently suspended his year-end S&P 500 target. BMO Capital’s Brian Belski and Oppenheimer’s John Stoltzfus have also pulled theirs, saying they need more economic certainty and specific data before re-instating any projections, though Belski still expects a sharp rebound once the market bottoms.
While splits among strategists have long existed, most tend to lean bullish, as stocks normally advance. The bears are ascendant this year. Lori Calvasina at RBC Capital Markets is among those saying stocks could fall further from here before rising into the year-end to finish at 2,750.
Strategists at Bank of America last week lowered their year-end S&P 500 target in conjunction with a severe growth downgrade by the firm’s economists, who forecast the deepest recession yet in the post-war era. The bank’s strategists see the index ending 2020 at 2,600, saying it could take years to recover lost corporate earnings.
At Citigroup Inc., Tobias Levkovich, also recently downgraded his target, saying the S&P 500 could trough at 2,100 and end the year at 2,700. “There is much unknown in the current environment and we will need to see some harder data before considering any changes to our outlook,” he wrote in a note.
For Peter Mallouk, president of Creative Planning, all that’s certain at this point is that there will be more volatility. “Fasten your seat belt, I certainly wouldn’t loosen it now,” he said in a phone interview. “We are going to see more volatility and we’re going to see it until we have a clear vision on what’s going to happen with the coronavirus.”
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