There’s been a lot of hope and speculation lately that the market hit bottom at the end of March.
After hitting an all-time high of $3,386 on February 19, the S&P 500 fell nearly -34% by March 23. But since then, the index has rallied into a new bull market, rising 25% in mere weeks.
But with many looking at that March 23 low, veteran emerging markets investor Mark Mobius said this week that it’s unlikely the market has hit “absolute bottom” yet.
“I don’t think we’re at the absolute bottom yet because the implications of this shutdown are incredible,” Mobius, the founding partner of Mobius Capital Partners, said Tuesday.
Mobius added that “things are pretty bad” from a corporate earnings perspective, and while some bargains have emerged, investors should keep some cash ready to deploy in the even of a further market downturn.
“Although there are some opportunities to buy, I would say it’s probably a good idea to keep some powder dry for another downturn,” Mobius said. “We might see a double bottom.”
Analysts are expecting S&P 500 earnings growth to fall 10.2% year-over-year for the first quarter.
Earnings began rolling in this week with major banks reporting first, giving a glimpse of just how bad the situation is. JPMorgan and Wells Fargo reported first, with JPMorgan reporting its Q1 profit slumped 69% to the lowest level in more than six years, while Wells Fargo said that its first quarter results were “impacted by a $3.1 billion reserve build, which reflected the expected impact these unprecedented times could have on our customers.”
Bank of America set aside $3.6 billion for loan-loss reserves, the most since 2010.
“W’re now being tested in a new environment,” said Bank of America CEO Brian Moynihan on a call with analysts. “We didn’t know what economic challenges might cause us to have to demonstrate this resilience. That challenge is upon us now.”
And Citigroup set aside $7.03 billion to cover potential losses on loans.
“COVID-19 is a public health crisis with severe economic ramifications,” said Citi CEO Michael Corbat in a statement, adding that while the firm’s revenue held up in the first quarter, “economic shocks caused by the pandemic weren’t felt until late in the quarter.”
And those economic shocks have been startling as illustrated by a slew of economic data out this week.
On Wednesday, it was reported that retail sales in the U.S. tumbled the most on record in March, falling 8.7% from the month prior, with clothing stores seeing the greatest decline at 50.5%.
In addition to that, U.S. factory output dropped by the most since 1946 last month as the wave of shutdowns due to the coronavirus crippled the manufacturing sector with production falling 6.3%. Meanwhile, U.S. home-building activity collapsed in March, with housing starts falling 22.3% from February.
“The economy is clearly in ruins here,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “This was just one month… Consumers are hunkering down at home, only venturing out to go to the grocery store. It’s lights out today, and as far as we can tell, it’s going to be worse next month.”
Mobius echoed that sentiment, saying that the damage from a protracted shutdown will be “incredible,” and called for the economy to open up again “in some way.”
“I think we have to open up again in some way, because otherwise the collateral damage is going to be incredible,” Mobius said. “You think about the people who live day by day… you got to get the economy going again.”
While the Trump administration today released its guidelines for states to begin relaxing some of the strict social distancing measures imposed to combat the spread of the coronavirus. Still, states will ultimately make the decision to lift restrictions, and many health experts and business leaders have warned that widespread testing systems are needed before Americans can safely begin returning to their normal lives.