Follow the money.
Goldman Sachs is stepping out with some bullish commentary.
Market Watch reported, “a team of Goldman Sachs strategists led by David Kostin, says the worst of the market rout is behind us.
A ‘previous near-term downside of 2000 [for the S&P 500] is no longer likely. Our year-end S&P 500 target remains 3000 (+8%),’ says the team in a note to clients on Monday.
“Why? ‘The combination of unprecedented policy support and a flattening viral curve have dramatically reduced downside risk for the U.S. economy and financial markets and lifted the S&P 500 out of bear market territory,’ said Kostin.
“‘If the U.S. does not experience a second surge in infections after the economy reopens, the ‘do whatever it takes’ stance of policy makers means the equity market is unlikely to make new lows,’ said Kostin.”They also argue, as their chart shows, bear markets usually bottom before economic data’s nadir.”
As the song says, the darkest hour is just before dawn.
Yahoo News is more skeptical, reporting, “Right now, Kostin is in the minority on Wall Street on thinking the lows for the S&P 500 won’t be retested in coming weeks (he did ‘predict’ a downturn shortly before it happened…so there’s that). While corona virus infection counts may be reaching a peak in some parts of the U.S., Corporate America – and small business America – are smarting for a forced shutdown. The approaching earnings season that kicks off this week with results from the big banks could be a downer and serve as a temporary downside catalyst to equities.”
There is some sobering news too. China-owned Smithfield Foods shut down its largest plant. “Virginia-based Smithfield Foods announced Sunday that it is closing its pork processing plant in Sioux Falls until further notice after hundreds of employees tested positive for the corona virus — a step the head of the company warned could hurt the nation’s meat supply.”
Ok… the price of bacon is going up a bit, and that’s a boon for local markets for the moment. Overall, the food supply disruption will probably result in some increased prices at the supermarkets as a reaction.
There is some good news for the energy industry. Russia and OPEC have reached a deal that will buoy oil prices. From oilprice.com: “The U.S. remains the major global producer, still at 13.0 million [barrels per day] as of last week,” one IHS Markit analyst told MarketWatch. The production numbers that the EIA puts out in its weekly petroleum status report are estimates, and production growth may have started to go down as producers idle rigs and cuts spending plans. However, the fact remains that the U.S. is the top oil producer, and if it does not adjust its output, Russia’s and Saudi Arabia’s willingness to curb production will make little sense for prices.
One could argue that Trump’s call on OPEC and Russia to cut production goes counter to his belief in the free market, but it is also true that U.S. producers would be forced to cut output with or without an international agreement if their breakeven prices are higher than the price at which oil is actually trading.”
From the WSJ: Saudi Arabia, Russia and the U.S. agreed to lead a multinational coalition in major oil-production cuts after a drop in demand due to the coronavirus crisis and a Saudi-Russian feud devastated oil prices. The deal, sealed Sunday, came after President Trump intervened to help resolve a Saudi-Mexico standoff that jeopardized the broader pact.
In the meantime, we’re all enjoying cheap gas at the pump… even if we’re not going very far.
Getting back to ‘normal’ with the country re-opened, we’ll see confidence restored to the markets overall.
As I’ve stated in the past, we’re ‘bumping along the bottom’ and the market is waiting for some good news. If you’re interested in discussing your allocation, to take advantage of the coming ‘rocket ship’, let’s talk!
Hopefully, we’ll get some this week.