My oh my how a two-week long bear market rally and unprecedented stimulus actions by the Federal Reserve could change one’s thinking on stocks still dealing with the bruising coronavirus pandemic.
Somewhat under the radar on Monday, veteran Goldman Sachs strategist David Kostin said his “near-term downside” scenario for the SP 500 of 2,000 is “no longer likely.” Kostin’s call was initially made on March 22, the day before the market hit its near-term bottom. Since the March 23 lows, the SP 500 has rallied to the tune of 14%.
Kostin points to the Fed’s fresh $2.3 trillion in stimulus and a slowing in the coronavirus infection counts globally for his yanking of the SP 500 2,000 call.
“If the U.S. does not experience a second surge in infections after the economy reopens, the “do whatever it takes” stance of policymakers means the equity market is unlikely to make new lows,” Kostin writes. “The Fed and Congress have precluded the prospect of a complete economic collapse. Reduced “left tail” risk translated into a higher P/E multiple.
Kostin continues to hold a yearend target on the SP 500 of 3,000, representing potential upside from current levels of about 11%.
Right now, Kostin is in the minority on Wall Street on thinking the lows for the SP 500 won’t be retested in coming weeks. While coronavirus infection counts may be reaching a peak in some parts of the U.S., Corporate America is still reeling from the aftermath. The approaching earnings season that kicks off this week with results from the big banks could be a disaster, and serve as a serious downside catalyst to equities.
“We are in a situation now where the technical and the fundamental are going to collide perfectly in what we’ve just seen, I believe, is a bear market rally. We saw several runs in 2008. We need to test the lows,” said Michael Lee, chief strategist at Michael Lee Strategy, on Yahoo Finance’s The First Trade.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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