While appreciating the bold and rapid deployment of stimulus measures to backstop the market an economy and earnings outlook is still needed to discount risk associated with an outlook, as economists at TD Securities note.
Key quotes
“What stocks reflect now is not exactly informative or clean. At some point, the economy/growth will need to matter and earnings will be needed to discount the outlook. Looking at the S&P 500 and forward earnings estimates, the two have diverged in a spectacular and uncharacteristic fashion.”
“Calling a top in equities – even if temporary – has been tough for the bears (ourselves included). But we remain comfortable with the view that risk has overshot and a reality check will need to sink in.”
“Markets may view 2792 in the S&P 500 as a notable pivot, this represents the 50% retracement of the all-time highs and March lows. Failure to hold above this level might instill some bearish momentum in risk, just as earnings season continues to unfold.”
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