BANK OF AMERICA: Wall Street bullishness gauge spikes most in 2 years, signaling a 11% gain for S&P 500 within a year
Wall Street bullishness surged the most in two years last month as economic reopenings lifted investor optimism, Bank of America said Wednesday. The firm's Sell Side Indicator gained to 55.8% from 54.9% in June, a sizable increase but still "far from the euphoria one sees at the end of bull markets." The reading also implies an 11% return for the S&P 500 over the next 12 months, the bank's strategists added. The gauge's "buy" and "sell" thresholds shrank to their narrowest gap in nearly two decades, according to the bank. Such a trend could form a bias against equities and create cheap dividend opportunities in the stock market. Visit the Business Insider homepage for more stories.
Bank of America's Sell Side Indicator notched its biggest increase in roughly two years as economic reopenings boosted risk appetites. The gauge of Wall Street bullishness jumped to 55.8% from 54.9% in June, bringing the metric just 0.3 percentage points below its 15-year average. The update implies an expected S&P 500 return of 11% over the next 12 months and factors into the firm's year-end target for the benchmark index. Though the leap signals an optimistic shift among investors, stock market emotions are still fairly lukewarm, the bank said. "This indicator is the most bullish of our five target models and continues to indicate that sentiment on stocks is still tepid, far from the euphoria one sees at the end of bull markets," the team led by Savita Subramanian wrote in a Wednesday note. Read more: GOLDMAN SACHS: Buy these 13 stocks that are poised to crush the market within the next 2 weeks as earnings season gets underway Recent price activity backs up such observations. After rallying hard through May, stocks ended June only slightly above where they began. Fears of a second wave of coronavirus and dried-up stimulus measures pushed investors back to safe havens. The trend also rears its head in the closing gap between "buy" and "sell" thresholds. Both thresholds had been falling for years, and the coronavirus pandemic has since shrunk the gap to its narrowest in nearly two decades, the strategists said. The shift is likely a result of yield scarcity, the pandemic's hit to retirement assets, and a "hot stove" mentality toward equities, they added. Read more: 'We may have a blow-up': Famed investor Jim Rogers explains how central bank 'madness' has the stock market hurtling towards another crash Still, the mild optimism creates a strong buying opportunity for US stocks. The Federal Reserve indicated in June that the current low-rate environment could last through 2022 to usher in a robust economic recovery. Such policy, when coupled with a growing bias against stocks, will allow investors to buy into safe dividend yield at low prices, Bank of America said. "The dividend yield of the S&P 500 is now at a multi-decade record multiple of bond yields, and whereas the sustainability of dividends has come into question amid the recession, we think a significant proportion of the S&P 500 offers sustainable dividend yields," the team wrote. Now read more markets coverage from Markets Insider and Business Insider: Stock analysts are having a moment in the sun as the market gets flipped upside down. We spoke to 11 of the top-ranked on Wall Street to get their forecasts and single-stock picks. Pfizer leaps 6% after releasing positive trial results for coronavirus vaccine Top US manufacturing index jumped the most since 1980 in June as reopenings spurred growthJoin the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time
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Summary List Placement A Democratic sweep in November would place stocks on a rollercoaster ride through...Summary List Placement A Democratic sweep in November would place stocks on a rollercoaster ride through the end of the year, Morgan Stanley strategists said Friday. US equities are among the few assets poised for a "detour" should a so-called blue wave take place. The market's steady climb would reverse temporarily before correcting in 2021, the analysts said. Stocks would initially dip on fears of higher corporate taxes and uncertainty around future stimulus, according to the bank. Once the party can clarify its fiscal relief plans, a follow-up to March's CARES Act and continued economic recovery can place stocks back on their upward path, the strategists added. Visit the Business Insider homepage for more stories. A "Blue Wave" come Election Day can boost stocks, but only after bouts of strong volatility and a knee-jerk decline, Morgan Stanley strategists said Friday. Current polls suggest Democratic presidential nominee Joe Biden will beat President Donald Trump in November, and that the Democratic Party holds a strong chance of securing control of Congress. Yet US equities are among the few assets poised for a "detour" should such a sweep take place, the bank said in a note to clients. While some assets such as Treasurys and oil would face a steady decline, an overwhelming Democratic victory would form a temporary deviation from stocks' upward trajectory, they added. The market's immediate reaction will likely be negative, according to the firm. Fears of tax hikes will drive initial selling and lower earnings outlooks. Read more: 'The largest financial crisis in history': A 47-year market vet says the COVID-19 crash was merely a 'fake-out sell-off' — and warns of an 80% stock plunge fraught with bank failures and bankruptcies The continued economic recovery would drive some derating of earnings-per-share multiples, posing a short-term risk until profit growth catches up with the updated forecasts. Uncertainty around future stimulus can also cloud initial hopes for fresh relief, the bank said. "We expect fiscal expansion to provide some offset [to higher taxes], but until the market knows the type of fiscal expansion after a Democratic sweep, expect that equity risk premium could remain elevated into January," the team of strategists wrote. Read more: Goldman Sachs says to buy these 21 stocks poised to deliver the strongest sales growth through year-end Still, stocks should resume their climb once volatility dies down and investors get a clearer look at the Biden administration's legislative agenda, according to Morgan Stanley. The continuation of economic recovery will revive spending and drive earnings growth. A follow-up to the March CARES Act will lift bullishness, and Morgan Stanley expects the tax scare to give way to a smaller-than-expected increase. "Our base case is to buy any dip on a blue wave as we think tax policy is difficult to enact and think the legislative focus will lean toward CARES 2 as a top priority," the team said. As for other outcomes, the bank views a divided government as having less of an up-front slump but a longer struggle with passing new stimulus. The nation's economic rebound could stall and slam investors' bullish forecasts, the strategists added. Now read more markets coverage from Markets Insider and Business Insider: Jerome Myers left corporate America to start real-estate investing and amassed a portfolio with over 90 units. He shares the 4-part strategy he's using to chip away at his 1,000-unit goal. Shaquille O'Neal, former Disney executives, and Martin Luther King Jr.'s son target $250 million SPAC launch Xilinx soars 17% on report rival AMD is in talks to buy it for $30 billionJoin the conversation about this story » NOW WATCH: How waste is dealt with on the world's largest cruise ship
Summary List Placement US stocks sank on Friday after President Donald Trump and First Lady Melania...Summary List Placement US stocks sank on Friday after President Donald Trump and First Lady Melania Trump said they both tested positive for COVID-19. The diagnosis adds more uncertainties to the final month of a presidential race already expected to fuel outsize market volatility. While some sectors pared losses and swung higher, falling tech stocks dragged on major indexes and led the Nasdaq composite to underperform its peers. Investors also faced off against weakening economic data. US businesses added 661,000 nonfarm payrolls in September, according to the Bureau of Labor Statistics. That's less than economists' expectation of 859,000 payrolls. Oil futures continued to slide below the $40 support level. West Texas Intermediate crude dropped as much as 5.4%, to $36.63 per barrel. Watch major indexes update live here. US equities tumbled on Friday after President Donald Trump and First Lady Melania Trump announced they both tested positive for COVID-19. Trump was tested late Thursday night after close aide Hope Hicks tested positive for the virus earlier in the week. The White House physician did not say whether the president was showing symptoms, or how long he had been infected. The diagnosis is poised to halt Trump's campaign events mere weeks away from the US presidential election. All three major stock indexes sank in the morning in choppy trading. While some sectors pared most losses through the day, falling tech giants slammed benchmarks and led the Nasdaq composite to underperform its peers. Utility, energy, real estate, and industrial stocks all posted gains. Here's where US indexes stood at the 4 p.m. ET market close on Friday: S&P 500: 3,348.44, down 1% Dow Jones industrial average: 27,682.81, down 0.5% (134 points) Nasdaq composite: 11,075.02, down 2.2% Read more: BANK OF AMERICA: Buy these 29 high-quality value stocks primed to cash in on the economic recovery The Cboe Volatility index — or VIX, which is commonly referred to as the stock market's fear gauge — soared as much as 12% before cooling through the morning. Airline and cruise stocks — some of the most common "reopening plays" — tumbled as Trump's diagnosis slammed hopes for a swift recovery. Safe-haven assets including the yen and Treasurys initially gained before investors reined in defensive bets. "Market swings can be unsettling, and there's a lot to think about with today's headlines. However, history has proven to us repeatedly that it's best to wait them out," Lindsey Bell, chief investment strategist at Ally Invest, said. "After the last eight months, you should be a pro at navigating rough waters like this." Read more: A fund manager who's beaten 99% of her peers over the past 5 years told us why she remains bullish on growth stocks despite the recent sell-off — and listed her 3 favorite stocks for continued gains in the decade to come Market participants also faced a worse-than-expected reading of the labor market Friday morning. American businesses added 661,000 nonfarm payrolls in September, according to the Bureau of Labor Statistics. The reading fell below the 859,000 additions expected by economists surveyed by Bloomberg. The unemployment rate fell to 7.9% through the month, beating the consensus estimate of 8.2%. Though the government's monthly report marked a fifth straight month of job additions, it also revealed a slowing pace of recovery for the beleaguered labor market. The millions of Americans still unemployed also find themselves without key assistance from the government. House Democrats advanced their own $2.2 trillion measure late Thursday, aiming to revive a $600 per week expansion to unemployment benefits and send another round of direct payments. Read more: Peter Mallouk built a $34 million RIA into a $50 billion giant. The wealth-management CEO pinpoints 3 opportunities his firm is implementing in client portfolios, and shares 2 tips on how to accumulate wealth. House Speaker Nancy Pelosi indicated she and Treasury Secretary Steven Mnuchin made some progress in reaching a compromise on Friday. Yet Senate Majority Leader Mitch McConnell has indicated that Senate Republicans won't back the bill. The US dollar initially slumped on the news of Trump's diagnosis before retracing losses. Spot gold hovered above its key support level of $1,900 per ounce, trading at $1,900.86. Oil prices continued to slide below $40 per barrel amid the chaotic trading. West Texas Intermediate crude sank as much as 5.4%, to $36.63 per barrel. Brent crude, oil's international benchmark, fell 5.2%, to $38.79 per barrel, at intraday lows. Now read more markets coverage from Markets Insider and Business Insider: US Investing Championship hopeful Evan Buenger raked in a 131.9% return through August. He shares the distinct spin he's putting on a classic trading strategy that's led to his outsize returns. Stock bullishness across Wall Street is back to pre-pandemic levels — and will likely spike even more after the US election, BofA says Penn National will nosedive 57% as weak fundamentals overshadow 'internet meme' rally, Deutsche Bank saysJoin the conversation about this story » NOW WATCH: A cleaning expert reveals her 3-step method for cleaning your entire home quickly
Multiple market forces are aligning in favor of continued stock gains — and they all trace back to record-low bond yields, according to a top Wall Street strategist
Summary List Placement Today's low-yield environment established three conditions likely to lift the stock market for...Summary List Placement Today's low-yield environment established three conditions likely to lift the stock market for months, Jim Paulsen, chief investment strategist at The Leuthold Group, said in a client note. The S&P 500 performs the best when yields sit in their lowest quartile, Paulsen highlighted. Low-yield environments are the only ones in which the S&P 500 still notches average monthly returns even when earnings decline. The prospect of yields staying low for a prolonged period "provides an excellent foundation for the S&P 500," Paulsen said. Visit the Business Insider homepage for more stories. Today's historically low bond yields may rankle some, but they set up an opportune environment for those holding stocks, according to Jim Paulsen, chief investment strategist at The Leuthold Group. Even as stocks sit near record highs, many are sticking to bonds as a safe-haven play. The trend has kept yields at record-lows through the pandemic, lessening their relative appeal in the eyes of nervous investors. However, Paulsen advised clients in a Friday note that the low-yield environment should pull even the most risk-averse toward equities. Here are the three ways Paulsen expects record-low yields to boost stocks higher. Read more: Jefferies handpicks the 17 best stocks spanning multiple sectors to buy now — and details why each company's future looks 'particularly attractive,' even in a downturn Greater gains, fewer losses For one, the S&P 500 performs the best when yields are in their lowest quartile. Annualized total returns reach 19.8% for the index when yields are so low, compared to just 9.5% in the second-lowest quartile and 5.4% in the second-highest quartile. The benchmark index also posts monthly losses less frequently when yields are at their lowest, Paulsen highlighted. "In spite of widespread angst during much of this low-yield era, it has produced superior stock market returns with the lowest frequency of market declines," he said. Happier earnings Low-yield environments also set the market up to perform better through earnings season, the strategist said. The S&P 500's monthly return totals 24.4% on an average annualized basis when earnings-per-share rise and yields sit in their lowest quartile. That's the second-highest average gain, only losing out to the scenario when yields are in their highest quartile. Perhaps more surprising is how the market outperforms when earnings decline and yields are at their lowest. While all other yield quartiles see S&P 500 average annualized monthly returns turn negative, the index gains 10.7% on months when profit fall and yields are in their lowest quartile. Read more: A 'disturbing new all-time low' in the market just flew under the radar as stocks hit record highs — and one Wall Street expert warns it implies years of bleak returns for young investors "Unlike any other time, if yields are very low, the stock market has historically done well whether economic and earnings activity improves or worsens. An extremely low-yield environment has proved to be rarefied air for the stock market," Paulsen said. Additionally, S&P 500 earnings decline far less frequently when yields are in their lowest quartile. The index's trailing 12-month EPS falls just 32% of the months when yields are at their lowest, compared to nearly 40% when yields are in their middle two quartiles and nearly half of the time when yields are in their highest quartile, according to Paulsen. Best for tech Finally, low-yield environments are a boon for the market's biggest driver: tech giants. Similar to the trend seen for the entire S&P 500, the index's tech sector performs best on average when bond yields are in their lowest quartile. The sector's monthly gains are the smallest when yields are in their middle two quartiles. Yet the most notable trend for tech stocks in low-yield environments is their relative durability even when earnings decline. While earnings increases boost the sector's average monthly return to 15.3% in the lowest-yield environment, months of earnings declines still give way to an average return of 12.2%. Read more: Legendary options trader Tony Saliba famously put together 70 straight months of profits greater than $100,000. Here's an inside look at the strategy that propelled him to millionaire status before age 25. Since tech stocks have driven major indexes' rallies — and brief slumps — over the past few months, their outperformance in low-yield environments stands to lift the broader market so long as yields stay low. "The 10-year bond yield has never been lower and, based on post-war data, it would need to rise above 3.3% before exiting the first quartile," Paulsen wrote. He continued: "The combination of extraordinarily low bond yields and the prospect of an earnings revival in the coming year provides an excellent foundation for the S&P 500, in general, and, in particular, its primary leaders — technology stocks." Now read more markets coverage from Markets Insider and Business Insider: A Wall Street firm says investors should buy these 15 cheap, high-earning stocks now to beat the market in 2021 as more expensive companies fall behind S&P 500, Nasdaq drop for 3rd straight week as tech continues downward spiral The Fed's money-pumping efforts are driving a new economic cycle that's reminiscent of 2009, Canaccord Genuity saysJoin the conversation about this story » NOW WATCH: Epidemiologists debunk 13 coronavirus myths