BlackRock, Credit Suisse and some other big banks reckon it is time to get back into equities after markets rallied this week following massive government and central bank stimulus packages to fight fallout from the coronavirus crisis.
The $2 trillion U.S. fiscal stimulus package proceeding through Congress has triggered big gains in global stocks, sending investors rushing to dust-off models from the 2008 financial crisis to gauge the right time to buy.
The Dow finished up 21% from its Monday low on Thursday, establishing it in a bull market, according to a widely used definition. It was the index’s strongest three-day percentage increase since 1931.
World stocks have risen nearly 8% so far this week and were on track for their best weekly gain since December 2011. They have recouped more than $5 trillion in the past two days.
Spotting an inflection point is not easy when the coronavirus is still spreading rapidly across Europe and the United States, but BlackRock and Credit Suisse said on Thursday they had turned slightly bullish on risk assets.
“The unprecedented actions represent the type of decisive policy response we have been calling for – and set the scene for an eventual economic recovery,” Jean Boivin, head of the BlackRock Investment Institute, said on Thursday.
The world’s top asset manager said the market sell-off had created significant value for long-term investors and told clients it now favored “rebalancing into risk assets.”
Within the equity space, BlackRock said it preferred U.S. markets due to the strength of Washington’s policy response and the quality of the market.
Many investors are still trying to work out the right time to re-enter markets. At least one model from JPMorgan shows the correct time would be now, based on a view that a recession would be shortlived.
Bearishness remains in many corners of the market, as uncertainty continues to swirl around the trajectory of the coronavirus pandemic and its potentially massive economic fallout.
Some 52% of investors surveyed in a American Association of Individual Investors poll had a bearish view on the U.S. stock market, the highest percentage since early 2009.
There also remains little clarity on companies’ earnings in the wake of coronavirus-led slowdowns in business activity, analysts at Yardeni Research said in a note.
“With the U.S. and global economies falling into a severe recession, analysts will need to lower nearly all of their revenues and earnings estimates in the coming weeks and months,” the report said.
Others, however, said it is better to act early than miss a potential rally.
Credit Suisse, which is positive on developed market equities, said: “There is merit in being an early mover rather than wait until a market bottom has become apparent for all.”
The Swiss bank said that over a six- to 12-month horizon, equities offered “attractive value.”
Notably, U.S. and European stock valuations based on a 12-month forward price-to-earnings ratio now have dipped well below historical averages, according to Refinitiv data.
Analysts at UBS Global Wealth Management, meanwhile, encouraged clients to position for the possibility of a more durable recovery by purchasing shares of oversold U.S. technology and communications companies.
“The positive momentum could continue in the days ahead if we see signs that government efforts to contain the virus are starting to pay off,” the firm said in a note to investors.
Others are looking beyond the movements of the broader market indexes.
Individual stocks have seen far more downside than the wider averages indicate, wrote Jurrien Timmer, director of global macro for Fidelity Management & Research Company.
“To say that the stock market is now extremely oversold would be the understatement of the year,” he said.
A gauge of S&P 500 stocks hitting new highs versus those hitting new lows last week produced the third lowest reading of that measure in history, eclipsed only by markets during the 2008 financial crisis and in the Great Depression, the firm’s analysis showed.
“With the exception of the 1930s, most of the downside in past sell-offs had been complete by the time markets became this extreme,” Timmer wrote.
“Some lower lows may well lie ahead in the coming weeks, but my expectation based on the above is that the momentum of the decline is probably peaking,” he said.