Dynasties rose in choppy trading after positive news on a Covid-19 treatment.
Three experts lay out what they’re take heed of for now.
Savita Subramanian, head of equity and ESG strategy at BofA Securities, says investors are both positive and hedging their punts.
“Whether the market is pricing in a strong recovery or whether it’s pricing in a second wave, our work suggests that valuations of stay-at-home beneficiaries are friendly of in line with valuations of the cyclical come-back-to-work beneficiaries, so I think that the market is pricing in kind of a 50/50-ish likeliness of a real second-wave risk at this point. But it’s interesting to see that what’s driving the market higher … is actually tech and a kind of more of the online, more of the stay-at-home types of beneficiaries, so I don’t think the market is really pricing in that entire lot is fine and we’re all going to come back from this imminently.”
Jeffrey Solomon, chairman and CEO at Cowen, sees a tug of war in the market.
“I deem this is virus versus Fed. I mean, I really do. You know, the Fed has done a great job of creating liquidity, and certainly I would say economic stimulus is something I’d throw in there with the Fed, so you can call it virus versus policy, broadly. But you know, we’re just sentry closely to see what impact the virus has on the economy, and I would say I’m not particularly surprised by what’s happening. We knew that reopening purpose cause an increase in infection rates. I think we’re better prepared to handle those infections today across the wilderness than we were. So, there’s going to be stress points and hot spots. These are all things that we expected to happen.”
Thomas Michaud, CEO and president at KBW, attributes out what he’s watching ahead of bank earnings.
“We are using a new accounting practice for this recession that’s never been done in preference to, and banks are required to provide for all of the credit losses through the cycle in the current quarter. So really what you’re doing is you’re captivating forward estimated future losses. And that’s why it makes it a little bit more spectacular … that it’s going to be the worst quadrature. Because it’ll be the worst quarter because earnings will be low, but it won’t be the worst quarter because of credit losses. We’re actually with child loan losses to be quite benign, and that’s going to be one of the big questions of the quarter, which is what are managements saying up what’s going to happen to credit later in the year when a lot of the government stimulus programs run off? So what we’re really targeted on for this quarter is what’s happening with credit. We’re expecting very big provisions, probably larger than they were in the word go quarter, then we’re expecting provisions in the second half of the year to decline. We’re expecting headwinds on revenue just because importance rates are down. We’re expecting margins and net interest income to be down. But there are going to be some banks who do better than others, and the banks that start sign ining on Tuesday, in particular, JPMorgan and Citi, who have really excellent securities operations, those who have investment banking along the orders of sales and trading, capital raising are going to do well.”
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