Apparently, the worst of the worst has been priced in.
Even with COVID-19 still spreading, fear of earnings fallout, and recession, Goldman Sachs says, “The worst of the market rout is behind us,” as noted by MarketWatch.
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%),” they added. “he 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.”
Goldman analysts added that if the U.S. doesn’t see another surge in infections when the economy reopens, the “do whatever it takes stance of policy makers means the equity market is unlikely to make new lows.”
That’s quite a change over the last few days.
Just last week, the firm said, “recent enthusiasm for stocks don’t necessarily constitute an all-clear signal for bullish investors seeking a path higher for the pandemic-stricken markets,” as highlighted by MarketWatch, adding, “There’s a little bit of asymmetry in terms of the downside risk toward a level in the S&P 500 of around 2,000, which is down almost 25%, and upside of around 10% to a target at the end of the year of 3,000.”
So why the change?
Apparently, “Despite the likely steady stream of weak earnings reports, 1Q earnings season will not represent a major negative catalyst for equity market performance. While earnings season always conveys backward-looking data, rarely has the information content of quarterly earnings reports been as outdated as the figures US companies will release starting this week,” says the firm, as quoted by Zero Hedge.
“We expect investors will mostly ‘look through’ reported 1Q results, which will capture only the start of shutdowns that began at the end of the quarter. In fact, many investors we have spoken with have discounted 2020 earnings altogether, and are focused instead on the outlook for 2021,” they added.
There’s Still a Good Deal of Unknowns
While it’s great to hear, there are still plenty of uncertainties. At the top of that list are concerns of reinfection among current patients, and those in recovery.
At the same time, we also have to worry about a second round of infection.
If that’s the case, the economy may not be able to open as quickly as hoped. World Health Organization (WHO) officials no say, “not all people who recover from the coronavirus have the antibodies to fight a second infection, raising questions as to whether or not patients develop immunity after surviving Covid-19,” as noted by CNBC.
That unknown could create even more chaos for the economy and markets.
