The futility of forming any forecast: Morning Brief

Wednesday, March 25, 2020

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Any outlook is just a chance for more disappointment

The world has been turned upside down.

Billions of people around the globe are currently locked down as governments work to slow the spread of the deadly coronavirus. The economy, in many parts of the world, has been frozen in place.

And while public safety does and should remain the top priority for all lawmakers and citizens right now, Wall Street strategists and corporate leaders are still trying to offer clients and investors some vision of what the not-distance future might look like.

But it has grown increasingly clear that offering almost any forecast is at best an exercise in guesswork and at worst an opportunity for a future disappointment.

As Howard Marks told Yahoo Finance on Tuesday, “There’s just no justification for having a confident view at the present time, in my opinion. And Wall Street takes it as its job to fill the void with forecasts and information.”

However, an increasing number of companies and strategists are coming around to Marks’ position that no confident view on any market or business outlook can currently be maintained.

On Tuesday, Mastercard (MA) became the latest company to pull its guidance, citing “the speed with which the COVID-19 situation is developing and the unknown duration and severity of the event.”

And although Mastercard said Tuesday that the “long-term fundamentals of our business remain strong,” there is no way right now to reasonably estimate what next one, two, or even four quarters might look like.

Wall Street strategists are starting to agree.

Back on March 16, Tony Dwyer at Canaccord Genuity was among the first strategists to pull their full-year outlook, citing the unprecedented nature of the coronavirus-related market decline, associated economic heart attack, and potential fiscal responses.

On Monday, John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, joined Dwyer in withdrawing his S&P 500 earnings forecast and year-end price target.

“The impact on the US economy of being broadly placed on hold will be determined to large degree by how long this remains in place and how quickly it can be removed,” Stoltzfus wrote. “In such an environment the risk and the extent of damage will vary greatly within segments of the economy and sectors of the markets causing us to suspend our target at this time… Diversification, patience and right-sized expectations appear to us to be the most practical order of the day.”

And while those following markets in the last few weeks have become well-acquainted with the arguments between those who believe the post-virus economic recovery will be V-, U-, or L-shaped, Stoltzfus is essentially telling readers that those arguments can wait for another day.

Instead, Stoltzfus’ note serves as the sell-side strategist version of an “until further notice” stay-at-home order for investors.

“We caution investors against seeking support levels, fiscal or monetary policies let alone symbolic events or gestures (e.g., corporate buyouts) to foretell or solidify a traditional bottom or capitulation,” said BMO Capital’s Brian Belski in a note published Monday.

Approach with caution when visibility is low.

“Given the irrational and fear-laden nature of the current stock market, historical precedence and traditional bottoming signals carry little to no weight, in our view,” Belski adds.

“Instead, markets and society likely need to see less negative (second derivative) headlines and actualities surrounding coronavirus (COVID-19 virus) to become reality before a bottoming process is likely to ensue.”

Over the longer run, Belski is still relatively optimistic U.S. stocks will bounce back, a view he says exposes him to a “Pollyanna” label.

“We simply believe in the fundamental construct of US companies and the wherewithal, strength, perseverance and innovation that has and will always define our society,” Belski writes.

And sure, a bet on the future of America isn’t exactly a controversial take. Even if the current moment in this crisis seems to be among the darkest yet.

And while Belski’s view may perhaps instill a false sense of hope among some readers, it is worth noting that there will be an end to this crisis. The biggest challenge for investors right now, then, might just be accepting that even estimates about when that day comes with far more downside than upside.

Because in offering a forecast for when, how, or why this crisis turns, the best you can do is be approximately right while more likely offering more chances for more disappointments.

Instead, it seems the only rational thing to do is to keep counting up, keep waiting, and let this virus run its course.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today


  • 7 a.m. ET: MBA Mortgage Applications, week ended March 20 (-8.4% prior)

  • 8:30 a.m. ET: Durable Goods Orders, February preliminary (-1.0% expected, -0.2% prior); Durable Goods excluding Transportation, February preliminary (-0.4% expected, 0.8% prior)

  • 9 a.m. ET: FHFA House Price Index month-on-month, January (0.4% expected, 0.6% in December)




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