Current State
- Corporate sales under strain
- Earning per share to fall
- 20% unemployment, 40m UI
- 40% GDP shrink
- Interest rate 0%
- Home sales 34% down
- Consumers cautious
- More layoffs
- Bankruptcies
- US-China tensions
COVID fears/vaccine wait
Recession looming.
FEDs strong n active!
Market overconfident.
Hard to forecast!
Tough to bet on it!
Some correction expected!
Nothing is ever certain on Wall Street!!
Key question:
Will the rally continue?
Optimistic Hypothesis:
Stocks vs. Bonds no brainer!
The key is if market holds these levels longer!
The rebound depends on easy CV testing and less deaths so people feel comfortable.
Corp profits to hit pre-crisis fully in 2021 H2.
As per FactSet, revised EPS:
Q2 is -40%, Q3 -25% and Q4 -12%
These are low bars to climb.
Improving sentiments and some rally!!
PE to get normal from 2021 onwards with better earnings.
SP500 can rise 15% from here!
Bottomline:
Economy 4.5% smaller by year’s end
Unemployment ~10% down from peak.
Vaccine most likely in 2021
Author: Rajan Dwivedi
Date: May 29, 2020
