In the past two months we have had conversations with many of you expressing how short term (6-12 months) we remain very cautious. Our view is that all the talk of a "V" recovery in the stock market and/or economy would require perfect execution and luck across multiple arenas (science, business, politics, etc.) That said, clearly some people see reasons to buy stocks right now, especially the S&P 500. With the help of Yoel Minkoff from Seeking Alpha, here are some reasons why people have bought into the market in the last four weeks:
1) Big growth stocks across tech and consumer staples are holding up. Think: Apple, Microsoft, Clorox, Procter and Gamble, etc.
2) Large companies that make up the S&P 500 can withstand the storm better than small businesses because they have easier access to the capital markets. For instance, if they want to issue bonds there will be buyers.
3) As a whole, analysts are forecasting a milder hit to earnings for S&P 500 companies.
4) Some investors are pricing a speedier rebound than what we experienced during the Great Recession.
5) Technical dynamics suggest a 'short-squeeze' occurred. This is when people betting against a stock are forced to buy or else risk losing more money.
6) Actions by the Fed: Expansion of asset buying, money market interventions, lending facilities and pushing down longer-term interest rates.
7) As in 2008, some people consider bad news to be good news because it paves the way for more government intervention.
As I said above, Judy and I do not generally agree with these views, but we feel it is important for you to see a 360 degree view of the market.
As always, please feel free to reach out to discuss in more depth.
All the best,
Mike, Judy and the FFP Team