Wall Street dip-buyers have a message for the doomsayers: It will get better.
With U.S. stocks plunging as much as 7% after triggering a trading halt, a clutch of investors and strategists are putting their necks out as the spreading virus and the oil-price collapse spur a frenzy of selling.
Their mantra is: risk assets look cheaper, the virus shock transitory and the policy response imminent.
Edward Perkin, chief equity investment officer at Eaton Vance, says it’s time to gradually lean in rather than de-risk. Barclays’ wealth-management unit is looking to deploy more cash, after lifting its stock weighting last week.
Peter Tchir, head of macro strategy at Academy Securities, has just morphed from bear to something of a bull on the view that market fears look overdone. Morgan Stanley sees a V-shaped economic recovery ahead.
“We moved back to neutral developed equities from underweight last week and we are watching our sentiment indicators carefully for a signal of when to deploy more of the cash,” said William Hobbs, chief investment officer at the wealth management arm of Barclays. “Our best guess remains that this is a transitory hit to economic activity, with a likely sharp recovery arriving in the second half of the year.”
Hobbs points to the example of China, where large-caps are up 8% from their February trough as the coronavirus outbreak shows signs of slowing and economic activity gradually recovers.
His confidence contrasts with predictions of a recession and calls for crisis-era stimulus heard across Wall Street on Monday as the S&P 500 lost as much as 7.4%, triggering a market-wide trading halt.
Entry Points
To be clear, even Hobbs isn’t certain market volatility will calm down just yet. But with a multi-month time horizon, these are attractive entry points.
The S&P 500 is now 17% cheaper compared with its peak, while the dividend yield is at a record compared with bonds. How you appraise the market depends on how dire you see the coronavirus shock on earnings.
U.S. stocks are now trading around 16 times the next year’s profits, much cheaper than their peak but still around their 10-year average and far higher than previous recessions.