Analysts at investment bank Credit Suisse have advised clients that the time is now right to start buying equities again. Does that mean the experts believe that the past 3 days of stock market gains means the bear market, which still leaves the FTSE 100 and other major indices down by around 25% on mid-February highs, has already run out of steam and markets have already embarked upon a sustained recovery?
Not necessarily. However, the bank’s analysts do believe that the risk of a long term global economic disaster has dropped significantly. It doesn’t mean that investors shouldn’t expect further reversals and volatility in the weeks and months ahead. There may well be another downturn(s) to come despite a largely positive week. But the analysts have a level of confidence that current market levels will represent good value for investors on a mid-term horizon as a result of the ‘big bazooka’ stimulus packages launched by the Fed, ECB, Bank of England and other major international players.
The Credit Suisse note to investors read:
“In light of the announced US stimulus package, we think that the risk of a very bad economic outcome has come down significantly. On a 6 to 12-month horizon, we feel convinced that equities offer attractive value, which is why we have moved developed market equities to a small overweight.”
The bank’s analysts are of the opinion that it is still more likely than not that equities markets will reach new lows before a genuine recovery gets underway. But that within a year at most markets will show a good return on today’s levels. Within that context, the advice is that it is better for investors to be early movers rather than wait in an attempt to time to market’s bottom.
The bullish stance is based on the assumption that major international economies will have a 6-8 lockdown with things then gradually getting back to normal. Were that to be extended, the presumption of a ‘V’ or ‘U-shaped’ recession, with recovery already underway by the end of the year, would be called into question.
The Credit Suisse outlook does not seem to be uncommon, given the optimism of markets this week. That held yesterday despite worrying news on the drastic leap in unemployment benefit claims in the USA. 3 million people filed for benefits last week – an historical record by a huge margin.
Despite looking like it might be heading for a loss to break the pattern of the two previous days of gains early yesterday morning, the FTSE 100 turned an initial drop around to finish Thursday up with a fresh 2.2% gain. Three consecutive days of gains have only been recorded four times this year. The FTSE 250, which many believe is a better reflection of the state of the domestic UK economy due to it containing more domestically-focused companies than the FTSE 100’s more international exposure, had an even better day yesterday. It rose 3.78% to its highest point in almost 2 weeks.