top of page

A Surging Rally Not Supported By Institutional Buying

Excerpts taken from Dion Rabouin from 5/23/20

  • Stan Druckenmiller, the former chief strategist for George Soros, called the prospect of a V-shaped recovery in the U.S. a “fantasy”and said government stimulus won’t be enough to overcome real-world problems;

  • David Kostin, chief U.S. equity strategist at Goldman Sachs, said that investors are dismissing significant concerns, "including $103 billion in expected bank loan losses in the next four quarters, lack of buybacks, dividend cuts, and domestic and global political uncertainty." He also expects the S&P 500 to drop at least 20% from late May levels by this summer;

  • Assets in money market funds, which are effectively savings accounts, have reached a record $5 trillion after seeing inflows in each of the past 10 weeks and rising by $1.15 trillion, according to Deutsche Bank. And the U.S. personal savings rate jumped to 13.1% in March, the highest since November 1981.

  • Bank of America's "Bull & Bear Indicator" has been stuck at 0 for weeks, suggesting investors remain extremely bearish, with 9 out of 10 calling the gains a "bear market rally" and 8 out of 10 expecting a U- or W-shaped economic recovery, rather than a V.

  • Goldman's investor sentiment indicator has fallen to -1.3, also indicating extreme distaste for stocks The influence of the coordinated efforts between the Federal Reserve and Treasury has taken many top analysts off guard. In most of our lifetimes, the investing public has not dealt with such a severe deterioration of economic fundamentals so quickly and, in turn, had to factor in the effects of a hastily rolled out stimulus of this magnitude. Traditional academic approaches to valuing risk and price have been subordinated to unprecedented government intervention in the form of a multi-pronged capital infusion. It's strange times. The modern day proverb "don't fight the Fed" couldn't be more apt.


bottom of page