THIS MARKET. JOINING ME RIGHT NOW IS CFRA
CHIEF INVESTMENT STRATEGIST, SAM
STOVALL.
STOVALL. IT’S GREAT TO SEE YOU THIS
MORNING.
MORNING. WE ALL WANT CLARITY IN ORDER TO
BELIEVE THAT THIS MARKET HAS IN
FACT SEEN THE WORST.
DO YOU HAVE ANY CLARITY IN TERMS
OF WHAT THE 2020 EARNINGS
PICTURE LOOKS LIKE?
>> WELL, IT’S CERTAINLY GETTING
CLEARER AND CLEARER, MARIA.
RIGHT NOW, EXPECTATIONS ARE FOR
AN EARNINGS RECESSION BECAUSE
THE FIRST THREE QUARTERS ARE
PROJECTED TO BE NEGATIVE
ACCORDING TO S&P CAPITAL IQ
CONSENSUS ESTIMATES, DOWN 6% IN
THE FIRST QUARTER, 12% IN THE
SECOND QUARTER, AND THEN 3% IN
THE THIRD QUARTER, OFF 4% FOR
THE FULL YEAR.
MARIA: OH, WOW.
SO YOU ARE LOOKING AT THIS YEAR
AS A RECESSION THEN, YOU’RE
TALKING ABOUT THREE CONSECUTIVE
QUARTERS OF CONTRACTION, DOWN 6%
IN THE FIRST QUARTER, DOWN 12%
IN THE SECOND QUARTER, DOWN 3%
IN THE THIRD QUARTER.
DO YOU THINK WE’LL SEE A BIG
REBOUND IN THE FOURTH QUARTER,
SAM?
SAM? >> NOT A BIG ONE.
WE’RE EXPECTING A 4% GAIN IN
EARNINGS IN THE FOURTH QUARTER.
REALLY, THE REBOUND IS EXPECTED
TO BE SEEN BY THE ECONOMISTS.
IN THE FIRST QUARTER, GDP IS
EXPECTED TO BE OFF AROUND 2% AND
THEN IN THE SECOND QUARTER DOWN
MORE THAN 7%.
BUT THEN SEEING ABOUT AN 8
AND-A-HALF PERCENT JUMP IN THE
THIRD QUARTER.
THIRD QUARTER. SO I THINK THE REAL QUESTION IS
WHO IS RIGHT.
IS IT THE EBBING ECONOMISTS OR T
ANALYSTS WITH THE EARNINGS
FORECASTS.
FORECASTS. BUT EXPECTATIONS ARE THAT IT
SHOULD END UP BEING A V-SHAPED
RECOVERY, JUST AS IT SHOWS A
V-SHAPED DECLINE.
V-SHAPED DECLINE. MARIA: SO YOU’RE SAYING YOU’RE
SEEING A DECLINE, A CONTRACTION
IN EARNINGS FOR THE FIRST,
SECOND AND THIRD QUARTERS BUT
THE GDP ACTUALLY THE NUMBERS ARE
A LITTLE BETTER.
DAGEN, JUMP IN.
DAGEN: IN TERMS OF WHAT YOU
WERE TALKING ABOUT, MARIA, THIS
JP MORGAN SAYING THAT THE MARKET
ROUTE IS PROBABLY PAST THE WORST
BY NOW, SAM, LET’S LOOK AT
CREDIT.
CREDIT. AGAIN, THAT’S THE MOST IMPORTANT
THING TO WATCH, OTHER THAN
EQUITIES.
EQUITIES. THE SPREADS ON INVESTMENT GRADE
BONDS, THEY PEAKED AT 618 BASIS
POINTS DURING THE FINANCIAL
CRISIS.
CRISIS. WE’RE ONLY AT 373 BASIS POINTS
RIGHT NOW.
RIGHT NOW. THAT INDICATES THAT THERE’S A
LOT MORE SELLING TO GO IN
INVESTMENT GRADE CREDIT HERE.
>> WELL, EITHER THERE’S A LOT
MORE SELLING TO GO OR THERE’S
LESS FEAR IN THE CREDIT MARKETS
THAN WAS SEEN IN 2008.
I THINK REMEMBER BACK THEN, YOU
REALLY DID NOT HAVE A BED THAT F
WAS AS RESPONSIVE AS THE FED IS
TODAY.
TODAY. YOU ALSO HAD CONCERNS ABOUT
DERIVATIVES IN 2008 THAT YOU
DON’T HAVE TODAY.
I WOULD TEND TO SAY THAT YOU
COULD EITHER LOOK AT IT WITH THE
GLASS HALF EMPTY BY SAYING IT’S
MUCH FURTHER TO GO OR HALF FULL
BY SAYING IT’S NOT GOING TO GO
THAT LOW BECAUSE THAT’S NOT
WHERE THE FEAR IS.
MARIA: MITCH, JUMP IN.
>> YEAH.
>> YEAH. AND I’M GOING TO -- SAM, GOOD
MORNING.
MORNING. I WANT TO STAY ON THAT CREDIT
TOPIC BECAUSE WE HAD A GUEST
EARLIER TALKING ABOUT CREDIT
CARDS, FORBEARANCE, WE HAVE A
LOT OF RETAILERS POTENTIALLY NOT
PAYING RENT.
PAYING RENT. SO THE CREDIT MARKET ISN’T JUST
CORPORATE CREDIT, THERE’S A TON
OF STRUCTURED PRODUCT OUT THERE
WHERE WE’VE SECURETIZED LOANS.
AS THOSE CREDIT SPREADS START TO
WIDEN BECAUSE THERE’S FEARS OF
DEFAULT IN THAT SPACE, HOW DOES
THAT RIPPLE THROUGH ALL OF THE
CREDIT MARKETS?
CREDIT MARKETS? >> GOOD MORNING, MITCH.
OBVIOUSLY, THOSE ARE CONCERNS,
THAT’S PROBABLY ONE OF -- THE
MARKET DID AS POORLY AS IT DID
DURING THIS -- FOR THE S&P 500.
BUT ALSO TAKE A LOOK AT S&P
GLOBAL, SPGI, YOU CAN SEE THAT
IT HAS RESPONDED QUITE NICELY,
IS DOWN SUBSTANTIALLY LESS THAN
THE MARKET AS A WHOLE.
SO I WOULD TEND TO SAY THAT
INVESTORS ARE VOTING WITH THEIR
POCKETBOOKS BY SAYING THAT THE
CREDIT SITUATION WILL PROBABLY
NOT BE AS BAD AS MANY PEOPLE ARE
ANTICIPATING.
ANTICIPATING. LOOK MORE TOWARD REAL ESTATE AND
RENTALS AND SO FORTH AS A GUIDE
FOR THAT SECTOR.
BUT IN TERMS OF CREDIT, AGAIN,
IT SEEMS AS IF INVESTORS ARE NOT
AS WORRIED THIS TIME AROUND.
MARIA: ALL RIGHT.
WE WILL LEAVE IT THERE.
SAM, THANK YOU FOR THE INFO.
GREAT TO TALK TO YOU AS ALWAYS.