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The Dow Is About to Make Another Massive Move. The Question Is: Where?

Last Updated September 23, 2020 1:59 PM
Sam Bourgi
Last Updated September 23, 2020 1:59 PM
  • CNBC’s 2020 Global CFO Survey reveals an extremely bearish outlook on the U.S. stock market, with more than half of respondents calling for the Dow to return below 19,000.
  • The CFO outlook contradicts new forecasts from Goldman Sachs and Bank of America, whose models predict higher stock valuations.
  • Stocks are coming off their second straight monthly advance.

The Dow and broader U.S. stock market ended May with a second straight monthly gain, as investors continued to bet on a full economic reopening in the second half of the year. But the rally could be short-lived as consumer demand remains subdued, according to a new survey of chief financial officers (CFOs).

CFOs Say Double-Dip Is More Likely

The Dow Jones Industrial Average is more likely to retest its March bottom below 19,000 before reaching another record high, according to CNBC’s Global CFO Council Survey . Fifty-one percent of respondents believe this crash scenario will play out versus only 22% who say the Dow will reach a new high before experiencing a significant drop.

Dow Jones Industrial Average
Despite a lengthy recovery, the Dow is still more than 13% shy of its all-time high. | Chart: Yahoo Finance 

CFOs in Europe, the Middle East, and Africa (EMEA) are the most bearish on stocks, with 70% forecasting a return to bear-market lows.

CFO survey, CNBC
Chief financial officers have a bleak view of the stock market. | Source: CNBC 

The dismal outlook is attributed mainly to negative perceptions about consumer spending and supply-chains, a sign that business leaders believe negative fundamentals will soon catch up to equity valuations.

Consumer spending accounts for more than two-thirds of economic output.

CNBC’s survey is not without limitations, as only 41 of 130 council members participated. The study was conducted between May 14-28.

Goldman Sachs, Bank of America Turn Bullish

The survey also seems to contradict new models by some of America’s largest financial institutions.

On Monday, Bank of America said there’s a more than 90% chance equity markets will be higher one year from now.

Ironically, the bullish outlook stems from BoA’s “Sell Side Indicator,” which shows strategists are getting bearish on the market. But the indicator is contrarian, which means extremes in sentiment signal the market will go in the opposite direction.

BoA says (as per CNBC) :

Historically, when the Sell Side Indicator has been this low or lower, total returns over the subsequent 12 months have been positive 94% of the time, with median 12 month returns of +20%.

How quickly will the U.S. economy emerge from recession? 

Goldman Sachs has also reversed its pessimistic outlook on the stock market. The Wall Street investment bank sees downside risk for the S&P 500  capped at 2,750–12.7% higher than the prior estimate of 2,400.

Strategists led by David Kostin  believe monetary and fiscal support will limit downside and keep valuations higher:

The powerful rebound means our previous three-month target of 2,400 is unlikely to be realized… Monetary and fiscal policy support limit likely downside to roughly 10%. Investor positioning has oscillated between neutral and low and is a possible 5% upside catalyst.


Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment advice from CCN.com.