Wall Street is deeply divided over the stock market's next big move. Will this 'disbelief rally' crash back down? Or is this actually the start of a new multi-year bull market?
Amidst the bleakest backdrop in modern U.S. history, the stock market is roaring.
The Nasdaq is one decent push away from a new all-time high.
Many investors are watching from the sidelines in disbelief while others are proclaiming a “new bull market.”
Wall Street has never been so divided. So what exactly is going on?
Goldman Sachs chief investment officer Mike Wilson has been optimistic since back in early April. In his weekly podcast on Monday, he tentatively declared this the ‘early cycle’ of a new bull market.
What drives his thinking? Well, the stock market recently shifted into a broader range. As CCN.com reported, this rally is no longer driven solely by the FAANG giants and ‘stay-at-home’ tech stocks. As Wilson explains:
A rotation towards new leadership is emerging. More specifically, early cycle sectors are starting to outperform lead by financials, capital goods, transportation, and consumer cyclicals.
This, he says, is a classic early cycle indicator.
Retired money manager Puru Saxena agreed with the sentiment. As he put it, bull markets are born out of the depths of chaos.
I am of the view that (unless we get new lockdowns) March-end was *the* low of the sharp but swift bear market and we are now in the very early stages of a multi-year bull market.
This is what bull markets do, he added. They ‘climb the wall of worry’ amid the worst possible economic situation.
Not everyone is convinced. In fact, so-called ‘smart money’ is more bearish than ever. Chief U.S. equity strategist at Credit Suisse Jonatan Golub says the markets have gotten ahead of themselves in the short-term:
It’s very, very difficult to justify these kind of market levels.
Bloomberg’s Dani Burger summed up the mood of many investors watching the market push higher:
This really might be the last gasp of a market that tries to keep rallying, rallying really in the face of expectations, and, at times, the reality of what’s going on in the street.
She acknowledged the ‘broadening out’ narrative and pointed out that ‘value’ stocks were extraordinarily cheap. But there’s something missing. Typically, value stocks need to see sustained inflation pickup and higher bond yields. That hasn’t happened yet.
Burger ended the segment fully admitting that stocks could easily keep pushing higher, with trillions of dollars still waiting on the sidelines to be deployed.
If the bulls at Morgan Stanley are right, how should investors get exposure to the market? According to Wilson, they should ignore the red-hot ‘stay-at-home’ stocks that have so-far pushed the market higher.
We continue to recommend investors look for beneficiaries of the ‘back to work’ rather than the ‘stay at home’ trend that is taking hold.
Wilson said there’s a good chance the S&P 500 consolidates or even corrects from here. But that dip would be a buying opportunity, he said. He’s looking at small-cap stocks, banks, consumer cyclicals, and healthcare sectors in a bid to catch the real recovery.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
Last modified: September 23, 2020 1:58 PM