Investors will return from a long holiday weekend in the United States on Monday to what could be calm before the storm – a relatively quiet week before a deluge of second-quarter corporate earnings reports is released from July 13.
However, most observers are looking at second-quarter earnings as they are likely to not only be horrible, but to receive no useful guidance from companies on what to expect for the rest of the year. The bigger question, then, is: what’s next?
Analysts who spoke to MarketWatch ranged from very pessimistic to cautiously optimistic in the second half of 2020, a year that has already been one for record books.
“The market is pricing a vaccine (coronavirus) for Labor Day, as well as endless fiscal and monetary stimulus. We have so many valued positive data points that if we don’t get them, the markets could fall, ”said David Rosenberg, a longtime analyst who now runs his own firm, Rosenberg Research.
Public health experts are concerned that the pandemic is far from contained as the United States headed for the holiday weekend of July 4. Meanwhile, Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, told CNN last week that the US is unlikely to develop collective immunity against the disease because any vaccine can only be partially effective. and it is unlikely that large numbers of Americans will be vaccinated
In the election years for the US stock market, “When the first quarter is negative and the second quarter is positive, the second half has been an average of 8% greater,” said Lindsey Bell, chief strategist at investments of Ally Invest.
But, Bell added, “in 2020, anything is possible.”
Here are some general points of consensus:
The earnings season will be moot.
About half of all companies in the S&P 500 index have withdrawn the earnings guide, said Donald Calcagni, chief investment officer at Mercer Advisors, and “the few that have not, are simply afraid.”
Bell believes that some companies may give some informal guidance, perhaps even on what the first few weeks of the third quarter look like, but that can shed little light. As she noted, FedEx FDX,
had a stellar quarter, with a boom in e-commerce that pushed their earnings well above Wall Street estimates, but Nike NKE,
disappointed. “I think it is going to be a mix, but the estimates are low enough that you can see some nice beats,” Bell said.
All analysts who spoke to MarketWatch also noted that valuations are high, although actual earnings are likely to be pretty lousy overall.
Related:It has been 100 days since the coronavirus sent the stock market to the bottom. This is what comes after his best rally in that period in 80 years.
Without much economic clarity, headlines are likely to drive markets
“The market is in a waiting pattern,” said Calcagni. “Since the big sell-off in June, I think the market has been looking for direction. Most of the trade now is probably due to rebalancing. “
Look for headlines about China to create markets, Bell told MarketWatch. “Trump wants to blame China for COVID-19 and believes his base likes him taking a tougher stance on China.”
Analysts did not provide any consensus on whether President Donald Trump or Democrat Joe Biden appear to be more likely to win the November 2020 election, or which outcome will be more acceptable to the markets. However, everyone thinks that daily data on coronavirus case counts and progress towards a vaccine or treatment will keep markets jumping.
The impending fiscal cliff may also be significant when the $ 600 per week additional unemployment benefit ends next month. While many Washington observers think Congress is likely to extend the fringe benefit, that is not a fact, and many believe that so far it has been responsible for preventing consumer spending and confidence from falling off a cliff.
Where do asset prices go from here?
It is unknown.
“I think markets may be vulnerable to another correction,” Rosenberg said in an interview. “I don’t give up on the possibility of retesting the lows. It is not my base case, but it is very interesting that we have tried at the highs but not at the lows. A new test would be a healthy thing. “
In a June 30 research note, DeutscheBank analysts wrote that “the focus will be on the US presidential election in what appears to be a tight race, which has historically meant a limited market until uncertainty is resolved. , followed by a strong recovery until the end of the year, regardless of who won. ”
The DeutscheBank team is “bearish” against the US dollar, and expects the 10-year US Treasury TMUBMUSD10Y,
to end the year at 0.70%, roughly where it is now.
In the holiday shortened week, the DIA Jones Industrial Average DJIA,
added about 3.3%, bringing its annual decline to 9.5%, while the S&P 500 SPX,
It gained about 4%, and is now down 3.1% on the year. The Nasdaq COMP Compound,
It is almost 14% higher in the year to date, after taking another 4.6% advantage.
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