Stocks recovering some of Monday’s historic decline. Stocks opened slightly higher after the S&P 500 Index’s third-worst percentage loss in its history—matched only by Black Monday in 1987 since the Great Depression. The overnight session in futures was very volatile, with significant gains completely reversing before settling modestly into positive territory an hour before the open. After an unprecedented six straight trading sessions with 4% or larger moves in the S&P 500, markets will look to Washington, D.C., for cues during today’s session. As COVID-19 cases continue to grow and social-distancing efforts are strengthened around the United States and globally, expectations for economic growth and corporate profits continue to fall.
US fiscal stimulus package moves to Senate. The US Senate is expected to pass a major fiscal package later this week, with an estimated impact of at least $750 billion. Measures are likely to include support for some paid sick leave, expanded testing, and additional funds for food aid and unemployment insurance. Coordinated global monetary and fiscal stimulus will be the key to both blunting the economic impact of COVID-19 and to supporting a robust rebound once conditions allow.
Looking at previous market corrections. The S&P 500 Index is down 30% from the new highs set just last month, one of the quickest and steepest sell-offs in market history. Looking at all the 10% or more corrections for the S&P 500 since 1980 showed that stocks usually have been higher a year after the bottom. Of course, we don’t know when this current weakness will end, but down 30% is fairly extreme. In fact, there have been 31 10%-or-more corrections since 1980, and we found the S&P 500 was higher more than 90% of the time a year later. We will discuss this important narrative in detail later today on the LPL Research blog.
Reduced economic and market forecasts. The global COVID-19 pandemic has caused significant economic disruption globally, sending stocks into a bear market for the first time in over a decade and yields to record lows. The uncertainty makes forecasting difficult, and we acknowledge the potential downside risks. Based on information currently available, our key updated forecasts will be available in today’s Weekly Market Commentary and are listed here:
2020 Real GDP Growth:
United States: 1-1.25% (down from 1.75%) with a bear-market case of 0-0.5%
Global: 2.5-2.75% (down from 3.5%) with a bear-market case of 1.5-2%
2020 US Market Forecasts
10-year Treasury yield at year-end 2020: 1.25-1.75% (previously 2-2.25%) and bear-market case of 0-0.5%
S&P 500 Index 2020 earnings per share: $158-162 (previously $175) and bear-market case of $138-142
S&P 500 year-end 2020 fair value: 3,150-3,200 (previously 3,250-3,300) and bear-market case of 2,200 or lower
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
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