Terry Gardner, CJ Lawrence Portfolio Strategist, joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi – April 6, 2020

Futures jump on hopes coronavirus spread may be stabilizing

https://finance.yahoo.com/video/futures-jump-hopes-coronavirus-spread-133055157.html

Terry Gardner, CJ Lawrence Portfolio Strategist, joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the coronavirus is impacting markets.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to check in now on the markets with Terry Gardner, CJ Lawrence Portfolio Strategists. Terry, good morning to you. Thanks for being with us. There has been talk in the past few days that if history is any guide, the market pulls through before the economy pulls through.

We see stock futures rallying quite nicely today. Do you think that’s going to be the case here? Are we going to see a stock market recovery before we even begin to see an economic one?

TERRY GARDNER: Good morning, Alexis. Yes, in fact we do think that the stock market, as you know, is a discounting mechanism. It will reflect improvements in the economy, even improvements in virus numbers well in advance of them actually being announced. So we think the market will react and respond more quickly than the broader economy.

And in fact, we did some analysis this past week to break apart the S&P 500 to look at which groups might improve more quickly than others. And on a weighted basis, it looks like, you know, 78% of the S&P 500 will recover much more quickly than the broader economy, and the broader index. So you kind of group the 500 into three categories.

One being impacted by the virus, one being disrupted by the virus, and then a third category being impaired by the virus. And 78% of the market weight, of the S&P 500 weight, fell into that impacted. So we would kind of see a two- to three-quarter recovery in those names, longer recovery in those other categories.

BRIAN SOZZI: And Terry, Brian here. Good, good to talk with you again. What is a S&P recovery look like? In terms of percentage gains, is it– is it a fast snapback?

TERRY GARDNER: Yeah so good morning, Brian. Interestingly, when you have a 25% draw down in the S&P 500, you typically get a relatively dramatic snapback in prices off the bottom. When you look at the past four recessionary periods, or just market crash periods, because not every market crash is accompanied by a recession, what you find is that once the market’s down 25%, if you put a dollar in at that point, you had pretty had some gains over the next 12 months.

The only period where that isn’t as clear is in the period around 2000, when we had the crash, or you had the burst of the internet bubble, and then subsequently we had the tragedy of 9/11. So we kind of have a double bounce there. But if you look at the 2008-2009 crisis, if you had bought that market down 25% from the fall of Lehman Brothers, over the next 12 months, you had an 18% return. So incrementalism was probably the word of the day, but buying the market at 20%, 25% down has worked in previous cycles.

ALEXIS CHRISTOFOROUS: So Terry, what would you say for investors who may be looking for an entry point right now? We know how dangerous it is to try and time in the market. But do you think that things are looking more attractive in the past few days?

TERRY GARDNER: I think that’s a double edge, Alexis. Yes, the market is trying to find its footing. And that may take some time. We may still have some down days, and some big up days. So the market will likely remain volatile. We’ve tried to use some recession math. It’s obviously very difficult to apply fundamental principles, looking at earnings, and P/E ratios, when we really don’t know what the earnings outlook looks like.

But even using some recession scenarios, we’ve got to create a fundamental range between 2,200 on the bottom and 2,700 on the top. We’re somewhere around 2,500 now. Is where we’re in the midst of that range. So you know, it may take some time for us to get more visibility. But each day that goes on where, we’re kind of working through the three phases of this challenge, one being peak virus, where are we in terms of peak virus?

We’re probably a couple weeks out from that here, at least in the New York metropolitan area, maybe a week to two. Peak panic, we seem to have passed peak panic for the most part. And then thirdly, peak bad news. And Brian, Alexis, that’s the period that we’re going into now.

Earnings season is upon us, and the news is going to be bad, and probably getting worse. We’re going to see how the market digests those bad reports, those challenges, before we get a feel for where the bottom really is put in or not.

ALEXIS CHRISTOFOROUS: Yeah, exactly. Earnings season upon us and the estimates are all over the map. Some are saying we’re going to see a decline of about 4% to 5%. Others, like Goldman Sachs, saying we might see a 30% drop in earnings. So that will definitely be the catalyst for the market going forward. Terry Gardner, portfolio strategist at CJ Lawrence. Thanks so much for being with us today, and be well.

TERRY GARDNER: You, too.