 | ||||
| ||||
The stock market's recent behavior has been nothing less than spectacular and one for the record books. The market rebound that got underway in March last year still continues, with all the major indexes at or near record levels. Helping the stock market's momentum is optimism about the vaccination effort and steady improvement in the economic picture, with the Q4 GDP report the latest economic reading showing the recovery very much in place. But there are those with less optimism about the outlook given the ongoing resurgence in infection levels, new strains of the virus and hiccups on the vaccination front. The market has been trying to balance these competing views about the outlook, resulting in the major indexes drifting sideways in recent days. So where do we go from here as the U.S. economy continues to recover in the face of a race between rising infection rates and the vaccination effort? Let's examine the landscape of bullish and bearish arguments to help you make up your own mind. Let's talk about the Bull case first. An Accelerating Recovery: The pandemic dealt the U.S. economy a severe blow whose effects will likely linger for a while, particularly for some parts of the economy. But the markets correctly saw through to the fact that the U.S. economy entered the downturn in the best possible shape, with household and business confidence at near record levels on the back of a multi-decade low unemployment rate, rising wages and record corporate profits. The recovery got underway with a record rebound in Q3 that continued in the last quarter of the year, albeit at a slower pace. While pockets of severe pain still remain, the resilience of the economy can be gauged from the fact that it exited 2020 to within 3% of its pre-pandemic level. There is actually a group of economic forecasters that sees current 2021 consensus GDP growth forecasts underestimating the full extent of the rebound in activity levels as the vaccination effort reaches a critical mass this Spring and beyond. This group of forecasters expects growth to be almost 50% above what is imbedded in consensus projections. Unprecedented Policy Response: The new administration's $1.9 trillion relief package currently in Congress comes on top of the extraordinary fiscal and monetary measures put in place last year. These measures helped replace lost wages for workers, assisted small businesses in staying open and staved off solvency issues in industries hit hard by the pandemic. The new relief measures will not only sustain and strengthen the existing supports, but also facilitate the ongoing vaccination effort that promises to put the pandemic behind us. The U.S. economy's strong rebound provides ample evidence that these measures have been very effective, though we will likely need to sustain the relief effort to ensure that the recovery remains in place. Strong Banks Mean Smooth Recovery: Regulatory reforms instituted after the global financial crisis ensured that the U.S. banking sector was in rude health as the pandemic arrived. Banks' profitability suffered a severe blow as they built up reserve cushions in the first two quarters of 2020. But as the group's strong Q4 results show, they have started to release those reserves already as they can see light beyond the pandemic tunnel. Banks are the lifeblood of the economy as they ensure the efficient transmission of capital to different economic actors. The successful implementation of the small-business relief program, which was a key part of the earlier fiscal relief measures and is also included in the $1.9 trillion relief proposal, has been possible only because of the health of the banking sector. The Fed reconfirmed on Wednesday that its monetary policy stance remains favorable and supportive of the market. What this means is that it will continue to keep interest rates and overall financial conditions supportive of stocks for the foreseeable future. Let's see what the Bears have to say in response. Market Complacency about Economic Recovery: The stock market's rebound from the last March's lows that got a fresh boost from favorable vaccine announcements reflects a best-case scenario for the U.S. economy. As the underwhelming Q4 GDP report shows, the preceding quarter's record growth rebound was likely a one-off reflecting a flood of fiscal and monetary stimulus that will be hard to sustain given the administration's razor thin Senate majority. There is understandable optimism about the vaccine rollout, with most projections assuming an almost normal operating environment in the second half of the year. This is likely no more than wishful thinking, given our vaccination performance thus far and the pathogen's ability to mutate into something that is less vulnerable to the existing cures. A realistic read of the vaccination effort will also need to keep in mind the not-so-small segment of the population that will be less-than-forthcoming in submitting to the jabs and what effect that will have on our ability to reach the so-called herd immunity. The recovery has gotten underway, but it will likely be slower and more drawn out than many in the market are banking on. More . . . | ||||
| ||||
| A Durable Hit to Confidence? The risk to human life, a function of the highly contagious pathogen, has been a unique aspect of this economic downturn. As a result, previously benign activities like eating out or taking a flight or any activity that involved physical interaction with others got weaponized. The operating assumption appears to be that we all hit a collective reset button and go back to normal once we are vaccinated. It seems reasonable to assume that people are starved for social interactions and badly miss the leisure and entertainment activities their pre-pandmic lives. But how fair and reasonable is the assumption that all of these activities will simply resume once at some stage in the coming months? The Market's Fed Addiction: The market's Fed dependence has only increased as a result of this pandemic. The central bank not only cut interest rates to near-zero, but has been playing an active role in ensuring market liquidity and backstopping corporate balance sheets. In other words, the Fed has reinitiated an open-ended quantitative easing or QE program that will significantly expand its balance sheet. Some projections suggest that the Fed's balance sheet could $10 trillion, more than the double the level in March 2020, with the central bank committed to this policy for an extended period. It is unfashionable to be concerned about growing fiscal deficit and the associated ballooning Federal debt as everyone seems to have subscribed to the so-called 'modern monetary theory', or MMT, that calls for open-ended and unlimited borrowing. We should keep in mind that some of the very excessive speculative activities in the stock market that have been dominating the headlines, I am deliberately not naming names here, is an indirect result of the free-flowing liquidity sloshing around in the market. This may not be an issue in these unsettled times, but we know that there is no such thing as a free lunch and that debt always needs to be paid back. Where Do I Stand? I don't dismiss the bearish arguments entirely, but I don't see them adding up to coming in the way of the U.S. economy's rebound or reversing the spectacular rally in the market. The reality is that we have learned enough during the pandemic to navigate this transition period as the vaccination effort ramps up. The health of the U.S. economy ahead of the pandemic and the very strong fiscal and monetary response, coupled with pent up demand, ensures that the economic recovery will only gain strength going forward. I am actually partial to the view that sees the consensus economic and earnings growth rate this year as on the low side. The worst of the pandemic's economic and corporate earnings impact is already behind us, with the picture already starting to improve. As regular readers of my earnings commentary know, the earnings picture has notably improved with estimates for the current and coming quarters already going up, a trend that I strongly feel will only accelerate in the coming three to six months as the vaccination exercise reaches a critical mass. Markets are forward-looking pricing mechanisms; they have already discounted the pandemic-driven growth hit and is looking forward to the aforementioned turnaround in earnings outlook. Continued confirmation of this favorable trend will further strengthen bullish sentiment in the market. These are historic times for the economy and the market. And historic times create historic opportunity. All in all, this is the best time to be fully invested in the market, particularly if you are investing for the long haul. And I would definitely be a buyer on any dip because with expectations for unprecedented economic growth for the remainder of the year, and annual GDP growth next year to be the strongest in years, it looks like there's a lot more upside to go. How to Make Our Economic Recovery Work for You Today is the perfect time to take advantage of the current strength of our economic recovery. That's why I'm inviting you to download our just-released Special Report 5 Stocks Set to Double. Each stock was handpicked by a Zacks expert as their personal favorite to have the best chance to gain +100% and more in the months ahead: Stock #1: Shares of this Growing Tech Company U+113% Since March 2020 Stock #2: Asian Company Controlling 80% of E-Comm's Market Share Stock #3: Domestic Well-Diversified Construction Company on the Rise Stock #4: Small-Cap Biotech Company Poised for Explosive Growth Stock #5: Renowned Omnichannel Retailer Wisely Pivots During Pandemic The earlier you get into these stocks the higher their profit potential. Also, the opportunity to download this report ends midnight on Sunday, January 31. Download 5 Stocks Set to Double now » Thanks and good trading,
Sheraz Mian serves as the Director of Research and manages the entire research department. He also manages the Zacks Focus List and Zacks Top 10 Stocks portfolios. He invites you to download 5 Stocks Set to Double. | ||||
 | ||||
| This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through January 4, 2021. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
没有评论:
发表评论