01.02.2022 – Wall Street brokers are plumbing the depths of the stock market: Is this it for the sell-off? Have we seen a viable bottom with the recent countermovement? Or were the gains of the past two days just an overdue bear market rally? We take a look at analysts’ echo sounder.
January was a wonderful month for bears. And a horror for bulls. The S&P 500 – down 5.3 percent – and Nasdaq – down 9 percent – posted their worst stock market month since March 2020. Even the recent countermovement isn’t helping much. We hope that you were right with your trades in the wild back and forth. But where do we go from here?
Sell the rally
Scott Rubner, actually always bullish trader at Goldman Sachs, judged that the “sell the rally trading mode is still in place”. The reason is a double whammy of a throttled money supply and a slowed economy: the investment bank now expects five interest rate hikes by the Federal Reserve, previously it saw four. The gold men also cut the outlook for U.S. gross domestic product in the first quarter from 2.0 to 0.5 percent. For the full year, they lowered the forecast by 0.2 to 3.2 percent.
For Morgan Stanley, too, the only question is how quickly to sell again. Chief Equity Strategist Michael Wilson just judged, “the safety net of forward guidance from the Fed is gone just as earnings revisions and PMIs appear set to decelerate – an unattractive risk/reward set up. We remain sellers of rallies and of the view that S&P 500 fair value remains closer to 4,000 tactically. Stick with defensives under the hood.”
All things considered, he said, the Federal Reserve is hell-bent on stopping inflation; it would take a much bigger sell-off in the stock market to keep the Fed from hitting the brakes sharply. And not all indexes had made it back above the 200-day line to the upside. The wild swings to the upside are just typical bear market rallies, he said.
“A bottom is in”
Andrew Tyler of JPMorgan, however, expressed a counter opinion. He stated, “Friday’s moves were primarily related to month-end rebalancing which tends to occur about 3 days before month-end.” However, he thinks that in the short term it will continue to go up. Specifically, “we’ll continue to see earnings support from MegaCap Tech and the chatter surrounding Citrix being bought may also help form a near-term bottom.” Investors should go long on “MegaCap Tech, Energy, Metals/Miners, Consumer Recovery stocks, and Transports … hedged using a market-neutral approach, with a combination of SPX, IG Credit (LQD), and Staples.” However, the recovery will not be sustainable until the VIX remains below 20 points on a sustained basis, he added.
Pay attention to the news
Our conclusion: Some bombed-out stocks could still go up a bit. As a ring leader among the indicators, we see the Nasdaq Composite, which should attempt a recovery to the 200-day line, which runs at 14,278. Then things will get exciting. Remains, moreover, the look at fundamental news – keep an eye on the real-time ticker. An invasion of Ukraine, for example, with pressure from the energy market and accompanied by a possible cyber war could cause a little panic. Or how about a revolution? A funny harbinger of the only seemingly unthinkable was just Canadian Prime Minister Justin Trudeau’s cowardly flight from wild-eyed truckers in Ottawa. The World Economic Forum’s distinguished protégé made a hasty retreat from the packers and taxpayers, who are fed up with the whole Corona stranglehold and the paternalism of the out-of-touch elites. The Bernstein Bank wishes good luck – we will keep an eye on all important issues for you!
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