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What Analysts are Saying About the Coronavirus Selloff: Is the Bottom In Sight?

Monday, March 9, 2020 | Steve Anderson
What Analysts are Saying About the Coronavirus Selloff: Is the Bottom In Sight?

So the last couple weeks have been a bit of a white-knuckled panic as we seemingly race to the bottom. With the S&P 500 futures market activating limit-down circuit breaker protections after losing 7%, it's easy to start thinking disaster is on the horizon. Yet recent reports from a range of market analysts and strategists  alike are suggesting that a turnaround may be coming up. Or not. The consensus view, meanwhile, seems to be that there really isn't much of a consensus about whether or not there's a turnaround coming, or if we still have farther to fall.

A Foundational Look at the Numbers

Thanks to the ongoing issues with the COVID-19 coronavirus, the market has been left reeling from selloffs on a grand scale. By itself, the Dow Jones Industrial Average is down just over 12% since its last record high of February 12, and this was a market that was generating record highs in rapid succession. Both the NASDAQ and the S&P 500 are down similarly—actually almost the same, to within a couple decimal points of each other—and several market assets are also declining. Crude oil, cryptocurrencies, and several others are feeling a decline.

More traditionally safe-haven assets, meanwhile, are enjoying a renaissance, as bond yields are looking at lows not seen in years. Gold recently saw its biggest one-week move in almost a decade—since 2011—though silver has been under unusual pressure by comparison.

So Here's the Good News

Armed with some background on the market's recent performance, we can take a look at what popular sentiment is gathering around the market from various analysts and strategists. Outcomes are proving, not surprisingly, somewhat mixed. Out of nine analysts consulted in a recent Marketwatch study, five had good things to say about the current market, three not so much, and one remaining a bit noncommittal.

The positive feedback started off with B. of A. Securities strategists who noted that—once the panic finally died off—there was room for “huge rotation to growth stocks and bond proxies” to kick in. The Sevens Report noted that, currently, the S&P 500 was trading at 17 times estimated earnings for 2020, down from just under 20 times just two weeks ago. This was too much pessimism for the Sevens Report, and though it thinks some panic is still in play, but in a few weeks, or possibly a few months, recovery should kick in.

BCA Research noted that the fundamentals supported bullishness, but the short term was likely to be hairy for some time. Jefferies Equities took a look at the S&P's ups and downs since 1990 and found that a “three-month horizon” commonly proved positive for the market. Lastly, Direxion noted that once large numbers of investors turn bearish, market opportunities are commonly missed, and “a large number of investors turning bearish” is a pretty fair summary of the market right now.

And Here's the Bad News

Naturally, the good news didn't rule the day unchallenged. Newfound Research declared attempts to find buys today “market timing,” which needed to be recognized. UBS couldn't find a reason to declare that a support level had been reached based on numbers from the Cboe Volatility Index, more commonly, the VIX. Mark Newton found a lack of “conviction” in current market moves, and thus wasn't interested in jumping back in. Throw in worrying drops in the Dow Jones Transportation Average and the potential for the continued decline was significant.

So What's the Path Going Forward?

Just to round it out, AxiCorp, via its chief market strategies Stephen Innes, suggested that impact duration from an event like this should take three weeks to bottom out and three weeks to recover, suggesting that we could get within striking distance of normal before the first flowers of May appeared.

For those who are thinking, that's almost half the year gone, that's a pretty reasonable picture of the market thus far. So the consensus here is that there really isn't much of a consensus. You'll find bulls and bears slugging it out for ideological supremacy all up and down the dial.

While the increased awareness around coronavirus, coupled with its comparatively low mortality rates outside of China, do suggest that better times are ahead—don't forget summer is coming, and diseases tend to retract when met with increased heat, daylight, and opportunities for fresh air—just when those better times actually show up depend on a range of factors that can't be readily predicted. Just ask the nine analysts from the Marketwatch report.

The Next 5 Retailers on the Edge of Bankruptcy

Through no fault of theirs, the novel coronavirus has put some retailers on the edge of bankruptcy. And as you’ve seen, many have fallen over that edge including iconic names like Nieman Marcus, J.C. Penney and J.Crew.

In fact, according to the American Bankruptcy Institute, there were 560 commercial Chapter 11 filings in April. That was a 26% increase over last year. And executive director, Amy Quakenboss, suggests that there are more to come.

“As financial challenges continue to escalate amid this crisis,” observes Quakenboss, “bankruptcy is sure to offer a financial safe harbor from the economic storm.”

With no revenue walking through the door, many retailers are seeing a semblance of revenue from e-commerce sales. But for some retailers, the shutdown is more impactful because they didn’t have a strong e-commerce structure. That means that they rely more than others on brick-and-mortar sales.

The real question now is will there really be the pent-up demand that some analysts still swear is just waiting to be unleashed. It may indeed exist. Time will tell. But time is not a commodity many of these retailers have. And we’ve identified five retailers for which the clock is not in their favor.

View the "The Next 5 Retailers on the Edge of Bankruptcy".

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