Why analysts believe we’re in the midst of ‘peak pessimism’: Morning Brief

Wednesday, April 15, 2020

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And why stocks are already starting to rally

The stock market continued its recent climb higher on Tuesday.

And this as brutal economic and corporate headlines keep rolling in.

As we discussed earlier in the week, this dynamic makes sense. The stock market is focused on what will happen in the future, not what is happening in the present.

And it is starting to appear that assessments of the present won’t be able to get much worse. Which means there’s nowhere to go but up.

In its latest monthly fund manager survey published Tuesday, strategists at Bank of America Global Research said the survey shows “extreme investor pessimism” with average cash levels rising to 5.9% of assets under management, the highest level since 9/11. Higher cash on hand suggests that investors have fewer opinions than usual on what happens next for markets.

“We say April = peak pessimism,” BofA strategists led by Michael Hartnett said.

BofA’s survey results, for example, show that 93% of investors think a recession will happen in 2020, just 15% of investors expect a V-shaped recovery, and the firm’s bull and bear sentiment indicator came in at 0.0. In other words, the firm basically couldn’t find any bulls out there and a deep, prolonged recession is now consensus.

Combine this report with the IMF’s gloomy global economic forecast released Tuesday and Jamie Dimon’s sobering commentary published with JPMorgan’s (JPM) latest quarterly report and it’s hard to put together a more dour set of headlines than what markets got on Tuesday.

In its latest biannual economic outlook, the IMF said it now expects global growth to fall by the most since the Great Depression this year. Global GDP is set to drop 3% with the IMF calling for a 5.9% drop in 2020 GDP growth in the U.S.

“Much worse growth outcomes are possible and maybe even likely,” IMF chief economist Gita Gopinath said in the Fund’s report. Economists at Bank of America have already called for the U.S. to experience its deepest recession on record.

Pessimism is high. (Getty)

Dimon, meanwhile, said the bank is preparing for a “fairly severe recession” and bolstered its credit reserves by some $6.8 billion during the first quarter as a result. As Bloomberg Opinion columnist Conor Sen said Tuesday, it was a strong day for the “headline contrarians.”

The market finished Tuesday’s session up 3.1%. The Dow and the S&P 500 are now 31.5% and 29.8%, respectively, off their lows hit on March 23.

Now, when it comes to economic forecasts, the news always could get worse but the market’s view at this point seems to be: to what end? That we’re in the midst of the worst economic shock in modern history is already table stakes. And as Baird’s Michael Antonelli told Yahoo Finance earlier this week, the market rally in implying that even amid “peak pessimism” investors are taking the “left tail,” or the absolute worst case scenarios, out of play.

So what we know is that the coronavirus has resulted in an unprecedented economic shock and that stocks have rallied sharply since late March.

And the market’s recent behavior suggests that more bad news won’t be enough to get investors anymore depressed than they’ve already been. Peak pessimism indeed.

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

What to watch today

Economy

  • 7 a.m. ET: MBA Mortgage Applications, week ended April 10 (-17.9% prior)

  • 8:30 a.m. ET: Retail Sales Advance month-on-month, March (-8.0% expected, -0.5% in February); Retail Sales excluding Autos month-on-month, March (-5.0% expected, -0.4% in February); Retail Sales excluding Autos & Gas month-on-month, March (-5.0% expected, -0.2% in February)

  • 8:30 a.m. ET: Empire Manufacturing, April (-35.0 expected, -21.5 in March); Industrial Production month-on-month, March (-4.2% expected, +0.6% in February)

  • 9:15 a.m. ET: Capacity Utilization, March (73.7% expected, 77.0% in February)

  • 10 a.m. ET: NAHB Housing Market Index, April (56 expected, 72 in March)

  • 2 p.m. ET: U.S. Federal Reserve Beige Book

  • 4 p.m. ET: Net Long-term TIC Flows, February ($20.9 billion); Total Net TIC Flows, February ($122.9 billion prior)

Earnings

Pre-market

  • 5:55 a.m. ET: UnitedHealth Group (UNH) is expected to report earnings of $3.65 per share on $64.67 billion in revenue

  • 6:45 a.m. ET: Bank of America (BAC) is expected to report earnings of 65 cents per share on $23.11 billion in revenue

  • 7:25 a.m. ET: Goldman Sachs (GS) is expected to report earnings of $2.83 per share on $9.49 billion in revenue

  • 8 a.m. ET: Citigroup (C) is expected to report earnings of $1.83 per share on $19.34 billion in revenue

  • Other notable reports: PNC Financial (PNC), Charles Schwab (SCHW), US Bancorp (USB)

Post-market

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Top News

US President Donald Trump speaks during the daily briefing on the novel coronavirus, which causes COVID-19, in the Rose Garden of the White House on April 14, 2020, in Washington, DC. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)

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