According to Wall Street analysts, stocks have plenty of room to run up further as an overwhelming policy response to the coronavirus pandemic the potential for a fourth-quarter economic rebound is accompanied by the potential bursting of the “fear bubble.”
But the road may get more difficult after mid-year, says Barry Bannister, the head of institutional equity strategy at Stifel, in a Wednesday note.
Bannister lifted his April 30 target for the S&P 500 to 2,950 after the large-cap index surpassed his previous target of 2,750. That marks a gain of around 3.7% from the index’s Tuesday close at 2,846.06.
“In addition to Fed policy easing and a potentially positive 4Q-20 GDP inflection, we also note that COVID-19 may simply be a bursting ‘fear bubble,’ relief from which investors should expect a rally,” Bannister wrote.
“The S&P 500 leads economic recovery because excess liquidity provided during a recession first flows into financial assets before being absorbed by the real economy; note also that in this cycle policymakers seek to keep global liquidity in U.S. dollar terms growing,” Bannister explains, referring to measures by the Fed and global central banks to meet the global surge in demand for U.S. currency.
What Happens in the Next 45 Days?
After recovering a chunk of the losses from the coronavirus-induced selloff last month, the stock market finds itself at a crucial inflection point, writes Alan B. Lancz.
“The next 45 days may just become the most critical period in U.S. financial history,” he wrote in a newsletter published Wednesday. “While on average we may face a bear market every 10 years, this one is like no other,” he adds.
The contrarian money manager, who is a disciple of famed investor Sir John Templeton, said that the timing and execution of the reawakening of the U.S. economy from its dormancy could be one of the biggest factors in determining how the market recovers from COVID-19.
And even if the economic revival is executed flawlessly, the result will be a so-called U-shaped recovery, where a rebound in business and consumer activity from pre-crisis levels will be long and slow. At least this is how the founder of the eponymous Toledo-based investment advisory firm views it.
“Even if we execute properly, the recovery will take time and a best-case scenario is a ‘U’ shaped recovery,” he wrote. “The much talked about ‘V’ shaped recovery is no longer in the equation because of the unprecedented combination of negatives with this crisis,” he added.
What’s the International Monetary Fund Doing?
The International Monetary Fund (IMF) announced on Wednesday that its executive board had approved the creation of a new short-term liquidity line to help member countries with strong fundamentals deal with the new coronavirus pandemic.
IMF Managing Director Kristalina Georgieva said the facility would provide a revolving and renewable backstop for member countries with very strong policies and fundamentals. This will benefit those who needed short-term and moderate support with their outstanding balances.
She believes this instrument will allow the Fund to provide revolving access of up to 145 % of a country’s quota, filling “a critical gap in the Fund’s toolkit.”