Wall Street Predictions: Where Is the Market Headed in 2020?
It’s hard to predict where Wall Street is headed in the coming months; most won’t even make an educated guess.
Case in point: The vast majority of companies withdrew their 2020 guidance.
The first-quarter earnings season is well underway, as about 24% of S&P 500 companies have released results. Of these companies, 60% exceeded both analysts’ earnings and sales forecasts. That said, first-quarter earnings dropped an average of 15.8%, and sales have grown at an average 0.1% pace.
Looking forward, the picture remains fairly bleak. According to FactSet, analysts expect negative earnings for the rest of 2020, with second-quarter earnings plunging 31.9%, third-quarter earnings declining 16.9%, and fourth-quarter earnings slipping 7.4%.
Unfortunately, these forecasts will likely be revised multiple times. The reality is that most companies cannot accurately predict what their business will look like for the rest of 2020. Of the 122 companies that posted first-quarter earnings so far, only 50 companies discussed 2020 guidance, and 30 of these 50 companies suspended their outlook for the year.
As a result, analysts have differing opinions on what to expect from the rest of 2020...
A well-known analyst at Morgan Stanley, Michael Wilson, is quite optimistic. He stated that the Federal Reserve’s efforts to support the bond market with $2.3 trillion worth of purchases of Treasuries and mortgage-backed securities will help ensure that a recession doesn’t turn into a depression. Given the Fed’s efforts, Morgan Stanley increased its year-end price target for the S&P 500 from 3,000 to 3,250.
Goldman Sachs analysts have been notoriously bearish in recent weeks, but even they’ve started to change their tune. Strategist David Kostin recently reported that the worst is behind us, and that a drop to 2,000 isn’t likely. Morgan Stanley now expects the S&P 500 to end the year around 3,000.
The “bond king” Jeff Gundlach isn’t as optimistic. Earlier this week, Gundlach noted that the stock market will react to negative economic data, especially the rising unemployment figures. He expects the S&P 500 to retest its recent lows.
David Rosenburg, often dubbed a “perma-bear,” is also fairly pessimistic right now. He anticipates that the U.S. GDP will contract 30% in the second quarter and unemployment will soar to 14.2% by the end of the year. As a result, Rosenburg expects the S&P 500 to plunge to 2,000 during the second quarter before slowly recovering to 2,600 in 2021.
There are clearly several best-case scenarios and worst-case scenarios out there.
Thankfully, most analysts agree that as businesses reopen and the global economy restarts this year, Wall Street should experience a strong recovery through the year’s end and into 2021. According to FactSet, analysts in aggregate expect the S&P 500 to rally more than 17% in the next 12 months. Analysts are also looking for average earnings growth of 18.2% in calendar year 2021.
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Articles for Reference
https://insight.factset.com/are-more-sp-500-companies-withdrawing-or-providing-eps-guidance-for-2020
https://insight.factset.com/sp-500-earnings-season-update-april-24-2020