S&P 500 could rebound to 3,500 by year end - SocGen

Mar. 18, 2020 6:51 AM ETXLK, XLP, XLY, IGM, IXN, IYW, VCR, VGT, IGV, VDC, QTEC, XRT, RXI, KXI, RHS, FXD, FXL, SOXX, SKYY, FDIS, FSTA, FTECBy: SA Eli Hoffmann, SA News Editor1 Comment
  • "The market is in our view currently pricing a deep recession for the entire year, with no anticipation of light at the end of the tunnel. Reconciling consensus expectations from a bottom-up perspective and the recent price action, which has a more top-down perspective, we believe that the wave of downgrades for consensus numbers should keep the S&P 500 under pressure in the near-term, until the end of 2Q20," SocGen analysts write in a note this morning.
  • While they do not exclude the potential for further downside on the S&P 500 in the next few weeks (if COVID-19 cases outside of China continue to increase and policymakers fail to efficiently respond in a coordinated way), their central scenario is that negative GDP growth stretches to Q3, and recovers in Q4.
  • "For 2H20, we believe that the long-term forces will remain in motion for the U.S. equity market – we do not believe there will be an L-shape, but rather a V/U shape recovery." They note that share buybacks remain high, and say the ownership of the U.S. equity market "gives us some clues."
  • For now, they suggest being long staples versus discretionary, and to stay away from the growth components of U.S. equities (U.S. tech).
  • Bottom line: "We believe the S&P 500 could rebound to 3,500 by end-2020."
  • Staples ETFs: XLP, VDC, KXI, FSTA, RHS
  • Discretionary ETFs: XLY, VCR, FDISFXD, XRT, RXI

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