You gotta buy the dip.
That’s the message from Canaccord’s Tony Dwyer, who lifted his 12- to 18-month price target on the S&P to 3,300, and upped his EPS estimate for next year to $165 from $150.
This comes as market participants seem reluctant to take any bold, definitive strides in either direction after coming to a fork in the road following the bounce off the March panic lows.
Apparently, we’re supposed to be emboldened by the similarity between the 10-week rate of change in 2009 and that witnessed recently, according to Dwyer, who thinks that having consolidated, equities are ready to move higher.
“Following the initial ramp to 3,200, we have been anticipating a multi-week/month period of consolidation with the intention of incrementally adding risk each time the SPX pulls back to 3,000″, Dwyer says.
Look, folks, I know. I really do. It’s just guesswork. But this is a slow time of the year. And everyone would rather be doing something else. The forecasts must go on, though.
Canaccord’s $165 EPS call for 2021 is basically in line with consensus bottom-up, which is looking for $163 next year, after a plunge to $125 in 2020. The figure (below) is updated through Monday just to give you some context (note that Goldman’s 2020 EPS outlook is well below consensus at $110, even as they’re more optimistic on 2021 than the market).
Dwyer isn’t the only one feeling good about things. DBS Group CIO Hou Wey Fook reckons we’re just in the “early innings” of FOMO.
“There is capacity to buy whenever there are corrections”, Hou remarked during a webinar. The reference was to cash on the sidelines.
I suppose that’s correct — depending on what you count as “cash on the sidelines”. Americans, for example, have certainly seen an influx of transfer payments, and the savings rate has surged to unprecedented levels. The three-month jump in M1 is three times that seen in 2008 and eclipses any annual total on record.
Of course, ideally, Americans who are inclined to spend that money will do so in the real economy, as opposed to gambling it in their Robinhood accounts.
But even that would be indirectly beneficial for equities to the extent it helps the recovery along. You wouldn’t think of yourself as “buying the dip” when you go to Starbucks, but in this case, that might actually be pretty apt.
More to the point, cash in money market funds remains near a record high despite recent outflows. That’s a potential source of funds.
DBS’s Hou went on to call retail investors “a force to contend with”, thanks to their purportedly higher acumen (versus yesteryear), higher savings rates, and zero commissions.
Coming full circle to Dwyer, he says “the combination of incredible monetary stimulus that is likely to continue for the foreseeable future and subsequent credit market and liquidity improvement” point to a brighter future for corporate profits.
Strategists at BlackRock Investment Institute aren’t buying it — figuratively or literally. They cut US equities to neutral in a presentation, citing election uncertainty and the possibility that lawmakers will fail to follow through on more fiscal measures.
“We now see a risk of policy fatigue in the US as policymakers face a series of ‘fiscal cliffs’ and may cut fiscal relief prematurely”, Managing Director Elga Bartsch said. “Domestic polarization is on the rise too, with the US presidential election set to take place against the most tumultuous domestic backdrop since 1968”.