The research provider TS Lombard predicted on Monday that the S&P 500 would fall below 2,000 in 2020. That would mark a 20% drop from where the index closed on Friday, and a drop of about 40% from its all-time high reached in February. The firm said it sees more market declines during the coronavirus pandemic because it doesn't believe a V-shaped recovery is possible. TS Lombard also thinks there will be further economic pain in the third quarter after a brutal second quarter. Read more on Business Insider.
The stock market has a lot further to fall as the coronavirus pandemic continues, according to analysts at TS Lombard. The research firm on Monday predicted that the S&P 500 would fall below 2,000 in 2020, marking a 20% drop from where the index closed on Friday. Such a decline would bring the index more than 40% below its all-time high of 3,386.15, reached on February 19. TS Lombard lowered its outlook for stocks because it doesn't believe that a "V-shaped" recovery — indicating a swift rebound and strong snap-back momentum — is possible for the US, even after the coronavirus pandemic subsides. "The idea that Americans are simply going to snap back as if what's going on had not happened suggests Wall-Street has 'herd immunity' to common sense," analysts led by Charles Dumas wrote in the note. An early sign of pain to come was in last week's jobs numbers, according to Dumas. On Friday, the March nonfarm-payrolls report showed that the US had lost 701,000 jobs during the month. That the losses were so much deeper than the 100,000-job contraction forecast by economists suggests that damage is more widespread than originally thought, he said. Read more: A stock chief at $7.4 trillion BlackRock shared with us his coronavirus-investing playbook: How to keep money safe, what he's avoiding, and some surprising contrarian bets "There is worse to come, hard though that may be to imagine," Dumas wrote, adding that labor income could fall through the second quarter and then the third. This conflicts with the V-shaped recovery that many economists have predicted. "The world will not just snap back to normal," he wrote. "Leaving aside the 'how' and the 'when' of any return to normal from the current lock-down, people are said going to be the same." Further, Dumas said, at the end of 2019, US households had more assets in the stock market than their own houses — but those assets have since been cut by a third. Small businesses — the "mom and pop" shops that are the backbone of the economy — are also likely to struggle to stay afloat during the coronavirus-induced recession, Dumas said. Read more: 'I was a single mother with 2 small kids:' Here's how Ashley Hamilton flipped a $20,000 waitressing salary into real-estate-investing success and a 10-unit portfolio "A little bit of government help may tide them over, of course — but who would bet that cutbacks in capex do not get triggered sooner than with the usual lag of six months or more?" Dumas wrote, adding that the Philadelphia Federal Reserve's survey of capital expenditure intentions was slumping before the COVID-19 outbreak hit the economy hard. Aside from potential spending cuts, "the first call on any revival of business cash flow will be to pay back whoever has tided them over — not much will be left for dividends even, let alone capex," Dumas said. Overall, Dumas said, the situation is a "stock market in denial, very far from any sign of capitulation." He concluded: "The second leg down of this bear looks as if it will be worse than the first ... and always, the last leg down hurts most." Read more: 14 Wall Street experts told us the single metric they're each watching to assess coronavirus market fallout — and give their portfolios a leg upJoin the conversation about this story » NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption
More like this (3)
Bank of America says the model that 'broke' US oil companies is over — and handpicks 7 energy stocks set to soar as the industry finds new footing
After plummeting this spring, oil prices are set to recover pandemic-fueled losses by the first half...After plummeting this spring, oil prices are set to recover pandemic-fueled losses by the first half of next year, according to a recent Bank of America report. But the impact of the market collapse on the US energy industry will endure for years to come, the bank said. It will reset the industry's growth model, forcing companies to focus on cash generation and modest growth. Ultimately, that will make the investment case for the sector better, the bank said in the report, in which it shared its seven top picks. For more stories like this, sign up here for our weekly energy newsletter, Power Line. After falling to historic lows this spring, oil markets are on track to reverse pandemic-fueled losses by the first half of next year, analysts at Bank of America said in a report last week. The recovery — which is set to push the price of Brent crude, the international benchmark, to $60 a barrel — is driven by a global drop in output, largely through an OPEC agreement to curb production, and a steady increase in fuel demand, the analysts said. But while the fall in oil prices may prove temporary, its impact on the US oil-and-gas industry will endure, according to a more recent Bank of America report published Monday. "It's hard to overstate the change we believe has taken place in the energy sector in the past six months," the report said. And those changes impact energy investing, the bank added. Investors have overlooked the longterm impacts of an oil market meltdown, it said, which is causing US companies to abandon "growth as a strategy" and marks the end of a business model "that broke the US oils." Instead, companies are focusing on generating cash. Click here to subscribe to Power Line, Business Insider's weekly energy newsletter. "This has the potential to reset the US oils to its legacy promise of what the sector can represent: reintroducing investors to an investment case that offers moderate growth, competitive with the broader market, and allows direct participation in a cyclical recovery in oil prices," they wrote. Do you have a tip about energy companies? Reach out to this author at firstname.lastname@example.org or through the encrypted messaging app Signal at 646-768-1657. 'The worst earnings season in a generation' The US oil and gas industry is known for unbridled growth enabled by "perpetual spending on a hamster wheel," the analysts said. Growth helped carry the country to energy dominance — but, as they point out, it came at a cost. It "underpinned amongst the worst returns of any sector in the broader market over the past five years," they said. Then the pandemic struck, causing oil prices, on which these companies depend, to fall by as much as 70% by April. Today, a barrel of Brent is down about 33% since the start of the year, at about $44 a barrel. Oil companies have lost billions in the months since. In the second quarter, which Bank of America called "the worst earnings season in a generation" for US oil companies, majors Chevron and Shell, alone, for example, posted a combined loss of more than $26 billion. While the quarter reflects a temporary crash in oil prices, it could be the most consequential quarter in a decade, the analysts said. "It is serving as the catalyst that forces a reality check on the business models that have decimated market confidence in the US oils," they wrote, mentioning similar sentiments shared by executives in the exploration and production (E&P) side of the industry. Read more: More than 30 oil companies have already gone bankrupt this year, and experts say many more will follow. Here are the 15 companies most at risk. "The traditional E&P growth model of the past is not viable going forward," Devon Energy's CEO, David Hager, told investors in August. The future of oil markets The collapse in oil markets combined with a growing focus among investors on sustainability has created a complete "cocktail of disincentives to own energy" stocks, the bank said. Yet, the analysts believe that, on the other side of the coronavirus pandemic, the US oil-and-gas sector will be more investible than any time in the last decade. Months of cheap oil has transformed E&Ps, driving a new mandate of moderate growth "that is competitive with the broader industrial sector, but leveraged to a cyclical recovery," the bank said. It is "reintroducing investors to the reason this sector existed in the first place," the analysts added. Plus, oil prices are recovering. There's an "accelerated rebalancing of global oil markets," the bank said, which is set to drive the price of Brent to $60 a barrel by the first half of 2021. At the start of this year, well before the coronavirus became a pandemic, a barrel was selling for about $68. Read more: Top oil companies invested $9 billion in clean energy deals since 2016. We ranked the 6 biggest spenders. Taken altogether, Bank of America says it sees "significant value" for many American oil companies. So where is it placing its bets? Bank of America's top stock picks The analysts looked for companies with plenty of cash and limited debt that are set to rebound along with oil prices. Their top picks include Occidental Petroleum, Exxon Mobil, Hess Corporation, Apache Corporation, Devon Energy, Pioneer Natural Resources, and Concho Resources. Occidental, they said, is a "controversial stock" and the timing of its acquisition of Anadarko Petroleum was unfortunate. But they added that it has a large number of assets, an updated board, and, generally, is poised to ride the recovery in oil prices. Exxon (XOM), which made deep cuts to capital spending, is similarly set for growth, they said. "In our view, XOM will be the only oil major to emerge from the latest downturn with capacity for sustainable dividend growth intact," the analysts said. Read more: Internal documents, leaked audio, and 20 insiders reveal Exxon made managers dub more employees poor performers as the oil giant sought to quietly cut staff Devon, Pioneer, and Concho, on the other hand, have three important traits in common, the bank said. They are heavily hedged in 2020, meaning low oil prices don't weigh them down as much, they have valuable oil-and-gas assets, and they are equipped to pare back spending should oil prices remain low or sink down further.Join the conversation about this story » NOW WATCH: Here's what it's like to travel during the coronavirus outbreak
The S&P 500's record high is a 'tale told by an idiot' and ignores the pandemic's economic fallout, Jim Cramer says
The S&P 500 and Nasdaq's new record highs show how divorced the stock market is from...The S&P 500 and Nasdaq's new record highs show how divorced the stock market is from the economy, Jim Cramer said on Tuesday. "The S&P's new highs are a tale told by an idiot," the "Mad Money" host said during his show. Cramer dismissed the idea that the market recovery reflects a V-shaped economic recovery, as the Dow Jones Industrial Average would have rebounded too in that case. "The winners in this market are the companies that are most divorced from the underlying economy," Cramer said. Visit Business Insider's homepage for more stories. The S&P 500 and Nasdaq's record closes on Tuesday highlight the stark disconnect between the stock market and the economy, according to Jim Cramer. "The S&P's new highs are a tale told by an idiot," the host of "Mad Money" on CNBC said during his show on Tuesday. "Full of sound and fury, signifying nothing about the hardship of millions of people on food stamps, or the millions about to be fired from service jobs, or the homeless, or the people who are just huddled at home waiting for the vaccine," he continued. The S&P 500 closed at 3,390 points on Tuesday, notching its first record close since February 19 and marking the shortest bear market since 1929, according to CNBC. Meanwhile, the Nasdaq closed at 11,211 — a striking rebound given it traded below 7,000 at its lowest point in April, an increase of some 60%. Cramer said it was "not just wrong but actually laughable" that the indexes' fresh highs reflect a "V-shaped" economic recovery. The Dow Jones Industrial Average would have rebounded too if that were true, he continued, yet the index is still down about 4% this year. "We've had a magnificent V-shaped recovery in the stock market, but the stock market's not a great reflection of the broader economy anymore," the former hedge fund manager said. "The actual economy's in precarious shape, especially now that the government's stimulus package has run out and Congress went home for the summer rather than trying to come up with a replacement," he added. Apple, Amazon, Microsoft, Alphabet, and other tech stocks have spearheaded the stock-market recovery this year. Financial, industrial, retail, leisure, and other stocks have lagged behind, as investors fear slower economic growth, lockdowns, and travel restrictions will hammer earnings for months to come. "The winners in this market are the companies that are most divorced from the underlying economy," Cramer said. Join the conversation about this story » NOW WATCH: Here's what it's like to travel during the coronavirus outbreak
China's economy looks set for a much-vaunted V-shaped recovery, while the rest of the world lags behind. Here's why.
China looks to be on course for a V-shaped economic recovery from its coronavirus hit, growing...China looks to be on course for a V-shaped economic recovery from its coronavirus hit, growing 11% in the second quarter of 2020 compared to the first. But economist Miguel Chanco, of Pantheon Macroeconomics, tells Business Insider he expects China GDP to fall by 1.2% in 2020. China, however, is the only major economy that will see a V-shape, two economists told Business Insider. Most major nations will see W- or swoosh-shaped recoveries. Visit Business Insider's homepage for more stories. When China's GDP bounced 11% quarter-on-quarter in Q2, it affirmed views that the world's most populous and the first country hit by the coronavirus pandemic may be on course for a V-shaped recovery, something which has become more of a fantasy elsewhere in the world. China is well ahead of the game in terms of its recovery, but how did it get there, and what's to come for the world economy? Business Insider spoke to two economists to get their views on why. China's potential GDP is much higher than other countries Christophe Barraud, chief economist and market strategist at Market Securities told Business Insider a reason why China has recovered faster than the US, is due to its higher potential real GDP growth, also known as real output. He said: "Potential real output is much higher in China than in advanced economies. Chinese [potential] is close to 6% while for advanced economies it is close to 1.5%." Read more: GOLDMAN SACHS: Stocks have never been more vulnerable to the failure of a few mega-companies — and the risks of a blunder are quickly piling up Barraud added that demographics in China means that "mechanically Chinese growth will recover faster than in advanced economies." "I think for Europe or US it will be almost impossible to reach the level seen in the fourth quarter of 2019 before 2022," Barraud said. China's economy will contract by 1.2% in 2020 Miguel Chanco, senior economist at Pantheon Macroeconomics told Business Insider: "The second half of the year is going to be very different from Q2. It's going to be much softer. Now that's a huge parts of China's economy are sort of back to where they were pre-COVID-19." China's economy grew by 3.2% year-on-year in the second quarter of the year and by 11% compared to Q1, beating Reuters economists' predictions. Read more: Jefferies is telling investors to buy these 13 cheap, under-the-radar stocks in order to bet on an economic recovery But he now expects growth in China to fall about 1.2% for the full year. Chanco explains that China has recovered faster than the US and Europe due to the strict measures it took at the inception of the crisis. "Because it's taken a while for the virus to be suppressed in Europe, it will probably take a lot longer for those economies in [western] part of the world to sort of go back to their pre COVID rates of growth," he said. The US likely faces a double-dip or "W" shaped recovery For the US, both economists are predicting a double dip recession, signified by a "W shaped recovery" or a swoosh-shaped recovery at best. Market participants spent much of June speculating whether the US was on course for a V-shaped recovery as some states began to re-open and May's jobs report showed the US added 2.5 million jobs defying expectations of 7.5 million jobs lost. But this V-shaped recovery expectation for the US has waned after a surge in virus cases. The US surpassed its biggest single day-rise with more than 75,000 cases reported on Thursday. As recently as June 24 the record was 37,014, and the record has been broken 11 times in the last month alone. "I think most developed markets will actually look like a Nike Swoosh. So you basically have a very steep drop and prolonged sort of return for long and very gradual recovery. With the second wave in the US reaching new heights, I think you could probably see a double dip there," Chanco said. Read more: 'Castles built on sand': Famed economist David Rosenberg says investors are being too reckless as stocks rally — and warns that a vicious long-term bear market is far from over 'China has made other emerging markets look bad' Chanco said India was the only country who he predicts an "L-shaped recovery" for, essentially a sharp contraction without any real economic comeback. "We are expecting a 10% contraction in India's economy this year and that's historic in many ways for one who hasn't had a recession in its modern history decades," Chanco said. "But in China we are probably looking at 1.2% contraction year-on-year. So that's a huge difference in outcomes. I think this is where sort of China has made other emerging markets look bad," he said. "The governments of India, Brazil and other emerging markets haven't really solved the problem of COVID or taken it seriously." Recent tensions between India and China could also prolong India's recovery from the virus, Chanco said. Tensions have flared in recent weeks between India and China, with some already speculating that the fighting on the two countries' Himalayan border could be a catalyst for a major conflict. Chanco explained India's strong "protectionist response" to the flareup will likely be problematic given India's reliance on China for imports. Brazil, the country with the second largest number of cases worldwide, will recover faster than India from the virus, he said. "In some ways Brazil being a commodity exporter will benefit to a large extent..as the trade links between Brazil and China are a lot stronger than they are between China and India," he said." Chanco added: "If Chinese demand recovers the way they expected to, then that will, to a certain extent, cushion the blow in Brazil. But India being a multi-domestic demand driven economy won't have this sort of lift from any recovery and external demand." Read more: Jason Tauber is crushing the market this year by finding the tech companies enabling the biggest disruptions. He told us how he's adjusting his game plan as valuations soar — and 7 of his top picks today.Join the conversation about this story » NOW WATCH: Why you don't see brilliantly blue fireworks