◼ FINANCE Bloomberg Businessweek April 20, 202023ILLUSTRATION
BY
FÉLIX
DECOMBAT.
DATA:
COMPILED
BY
BLOOMBERG
a 24% surge from late November 2008 to early
January 2009, before the final low was set in March.
Underpinning the current confusion is an unprec-
edented series of interventions from the Federal
Reserve, combined with a still-fuzzy picture of just
how long the virus will wreak havoc on the econ-
omy and corporate profits. The picture may begin
to clear as companies start reporting results for the
first quarter and offering guidance about what to
expect for the rest of the year.
That can’t come soon enough, considering how
starved of forward-looking data Wall Street is after
so many companies have withdrawn their fore-
casts. A buzzsaw is headed toward corporate profits
this year, but the extent of the damage is still a bit of
a guess. Imagine you owned a representative slice
of the S&P 500, worth $2,846 based on the index’s
level of about 2,846 on April 14. The high estimate
among Wall Street strategists tracked by Bloomberg
for your 2020 full-year earnings per share is $170,
while the low is $110. That’s a spread of $60 a share.
In early December, the difference between the high
and low forecasts was $16.
Those strategists are focused on overall S&P
profits. Looking at estimates based instead on ana-
lysts’ forecasts for individual companies, it’s hard
to argue that a sustained rally is under way. Profits
at S&P 500 companies are estimated to have shrunk
11% in the first quarter, led by a 51% plunge in
energy company earnings and 31% drops for each
of the consumer discretionary and industrial sec-
tors. The second quarter is expected to be even
worse, with an estimated 22% decline in S&P 500
earnings, followed by decreases of almost 10% in
the third quarter and 1.2% in the fourth.
So what explains the recent buying? The bulls’
case boils down to that simple, time-tested Wall
Street rule: Don’t fight the Fed. And this time, don’t
fight Congress, either. The central bank is basically
writing blank checks to shore up the fixed-income
markets, which could otherwise drag the stock
market into the dirt with them, and lawmakers are
spending trillions of dollars to mitigate the dam-
age caused by shutting down vast swaths of the
economy to slow the spread of the virus. Whether
those trillions will be enough is a matter for further
debate, but investors think Congress is at least mov-
ing in the right direction.
“The combination of unprecedented policy sup-
port and a flattening viral curve have dramatically
reduced downside risk for the U.S. economy and
financial markets and lifted the S&P 500 out of bear
market territory,” Goldman Sachs strategists, led
by David Kostin, wrote to clients on April 13. “If the
U.S. does not experience a second surge in infectionsafter the economy reopens, the ‘do whatever it
takes’ stance of policymakers means the equity mar-
ket is unlikely to make new lows.”
That “if ” about infections is a big one, of course.
And there are a lot of questions about just how
many cylinders the economy will be firing on
when it does reopen. How long will it take for con-
sumers to feel comfortable crowding into restau-
rants, movie theaters, and amusement parks, or
getting onto airplanes to visit tourist spots? How
long until they’re comfortable enough about their
own economic prospects to pull the trigger on big
purchases?
But forget all that for a minute, and consider
what the Goldman strategists and others say could
happen: The S&P 500 may have set its low for this
episode on March 23, barely a month after its last
record high, on Feb. 19. That’s unheard of in the
history of bear markets since 1929. It took on aver-
age 373 trading days from record high to bottom
during those 10 declines, according to numbers
crunched by Bloomberg macro strategist Cameron
Crise. The shortest time from peak to bottom was
74 days in 1987, and that bear market wasn’t accom-
panied by the type of major economic downturn in
the cards today.
This argues that investors shouldn’t assume the
bear market is anywhere near over. At the same
time, 2020 is the type of year in which precedents
may not count for much. The speed at which the
marketenteredbearterritoryis alsounprece-
dented,asis theworld’sresponsetothevirus.Even
OPECandotheroil-producing nations are getting
into the precedent-breaking game, with historic cuts
to production to shore up prices and the energy sec-
tor. Perhaps the lesson of 2020 is this: Just because
something never happened before, that doesn’t
meanit shouldbesurprising.�MichaelP.ReganForecasts Deteriorate and Diverge
Estimated 2020 earnings per share for the S&P 500 index,
accordingtoa Bloomberg survey of strategists
Median Range1/21/20 4/15/20$ 180140100EnergyFinancialsMaterialsConsumerstaplesRealestateConsumerdiscretionaryHealthcareCommunicationservicesUtilitiesInformationtechnologyIndustrials● Change in S&P 500
stocksbyindustryfrom
March 23 toApril 14
◼Outperformed the
broader index18.642.2%23.326.328.326.429.935.328.032.437.0THE BOTTOM LINE Some strategists hope we’ve seen the worst
of the market decline. If that turned out to be the case, this bear
market would be the shortest ever.