By Senad Karaahmetovic
S&P 500 futures are down Tuesday morning after a relief rally took place last week. Dow Jones futures lost 64 points in early Tuesday trade, or 0.19%, while S&P 500 futures were down 0.2%. On the other hand, Nasdaq 100 advanced 0.08%.
The declines in futures come after the DJIA and S&P 500 saw their biggest weekly gains in nearly two years. The DJIA ended the week 6.2% in the green, following its eight-week-long losing streak. The S&P 500 was up 6.5% for the week, while the Nasdaq jumped 6.8% after being in the red for weeks.
The rebound came after a portion of retail companies reported better-than-expected earnings results last week. A large part of last week’s gains occurred on Friday, with the DJIA rising over 550 points and the S&P climbing 2.5%. The Nasdaq saw a 3.3% gain on Friday, driven by decent financial reports from technology companies and a downturn in the 10-year Treasury yield.
Investors and analysts are now debating whether last week’s rally indicated that the stocks touched a bottom as they remain far from their high points. Here are the latest thoughts from prominent Wall Street strategists:
Morgan Stanley’s Michael Wilson: “Higher inflation and slower growth are now the consensus view but that doesn't mean it's fully discounted. The more equity prices rise, the more hawkish the Fed will be. Meanwhile, falling PMIs suggest at least 10 percent downside while a recession would mean even greater risk. Sustainable rallies will require growth rates to bottom, something we don't foresee until later this year.”
UBS's Keith Parker: “Our analysis supports our core views: 1) equity risk/reward is improving with the S&P 500 oversold by 4ppts as recession fears ratchet higher, 2) the greatest opportunities are within cyclicals vs defensives where the dislocation from fundamentals is at the most extreme level since 2012, 3) quality remains attractive given it provides important downside protection and valuations are cheap vs prior late-cycle averages, and 4) we seek stocks with attractive upside vs downside in volatile markets.”
BTIG’s Jonathan Krinsky: “Ultimately, we continue to think 3,400-3,500 is likely, but it's probably a late summer or early fall event. In 2000 and 2008, it took 18-months and 11-months, respectively, of weak markets and then some sort of ‘event shock’ like 9/11 or Lehman to get a surge above 40. The bigger near-term event that we see is a momentum reversal in sector performance. The strategy of buying winners and selling losers is coming off the most extreme level in over 13 years. This means energy should be vulnerable into a seasonal weak time of year, while tech/ growth/long-duration should be able to bounce further.”
Citi’s Scott Chronert: “Over the near term, our high-level takeaway is that the equity markets have reached a peak bearishness related to Fed expectations and recession risk. From here, we suspect that volatility will move more down the single stock path. With the Q2 reporting period approaching, we expect to see more evidence of this.”
BMO’s Chief Investment Strategist Brian Belski: “Recent price trends suggest to us that the [Communication Services] sector may be primed for a turnaround. In addition, these recent performance struggles have led to significant valuation contraction within the sector, with some of the largest stocks by market cap seeing their forward P/E multiples return to March 2020 levels, alongside valuation for the broader sector. While we acknowledge that earnings growth, in aggregate, has been somewhat of a drag, it is also important to note that quality attributes, such as return on equity and free cash flow yield have increased to multi-year highs. As such, we believe investors should embrace the quintessential investment barbell that is Communication Services. Indeed, we recommend that investors maintain positions within secular growth names, while tilting portfolios more toward the value-oriented and dividend-paying areas of the sector.”