Goldman Sachs, the investment bank whose forecasts investors keenly follow, even if they don’t always turn out to be right, has called a turning point in the Covid-19 pandemic’s impact on Wall Street. With the condition a second major wave of coronavirus is avoided, Goldman Sachs believes the worst is already in the rear-view mirror.
The bank predicts that thanks to the huge support and stimulus initiatives rolled out by the U.S. government and Federal Reserve, the S&P 500 benchmark index will finish the year 8% up from last week’s pre-Easter weekend close. Analysts at other banks are not quite so confident and believe investors should be prepared for further shocks before a sustained recovery gets underway.
Over the coming week the USA’s major banks will be publishing their first quarter financial reports as earnings season gets underway. The major banks are traditionally among the first companies to report their quarterly results and their combined fortunes are widely viewed as a bellwether for the country’s wider economy.
Over the next few weeks companies from each of the sectors that make up corporate America will publish their quarterly reports. Including March, these three-month snapshots will provide a clearer picture on just how big an impact the early stages of the Covid-19 pandemic had on company earnings. London-listed companies will also be reporting over the next few weeks.
Goldman Sachs’ chief US equity strategist David Kostin stated:
“If the US does not experience a second surge in infections after the economy reopens, the ‘do whatever it takes’ stance of policymakers means the equity market is unlikely to make new lows. The Fed and Congress have precluded the prospect of a complete economic collapse.”
The broader consensus is that we are currently likely to be in the middle of a ‘bear rally’. The term refers to an extended bounce from lows during a bear market but one which ultimately proves unsustainable and is followed by fresh downward movements. But Mr Kostin and his colleagues at Goldman, believe that the unprecedented levels of stimulus mean markets will not revisit recent lows unless Covid-19 has a powerful resurgence after lockdown measures are relaxed.
At the height of its losses after February 19th highs, the S&P 500 was down 34%. It then gained 25% in the run up to the long Easter weekend that has meant no trading last Friday and Monday this week. Last week’s 12% gain over the 4 trading days of the shortened week was the benchmark index’s most significant since 1974.
Goldman Sachs’ bullish stance is in contrast to a much less optimistic position a month ago. It then said it believed the S&P 500 could drop to the 2000-point level. Yesterday the investment bank’s analysts forecast it reaching 3000 point before the end of the year.
JP Morgan, the USA’s largest bank, and Wells Fargo will both report today with Bank of America, Citigroup and Goldman Sachs itself following tomorrow. Morgan Stanley’s results should be announced either tomorrow or Thursday. The expectation is that at least for now, drops in revenue across some banking products and units will be compensated for by higher trading earnings, with lucrative opportunities opened up by the high levels of market volatility across March.
Analysts are predicting that, on average, S&P 500 companies will report a 9% drop in profits over Q1 of this year compared to the same period last year.
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