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May 26, 2020, 10:10 a.m. EDT

BlackRock portfolio manager says stock investors should watch out for these blind spots right now

Critical information for the U.S. trading day

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By Barbara Kollmeyer, MarketWatch


AFP via Getty Images
Surprises ahead?

The glass is half full for Tuesday, with investors taking any positive bit of news on the virus front and running with it. That list includes vaccine news, lockdown easings across the U.S. and Europe, and Spain’s plans to crack open its borders to visitors again.

It may help also help morale to see a few NYSE traders return to the floor, for the first time since late March.

Our call of the day comes from BlackRock’s chief investment officer for U.S. fundamental active equity, Tony DeSpirito, who said that while he doesn’t see markets as too optimistic right now, there is plenty that investors may not fully understand about assets and the economy.

“The lockdown-driven decline in economic activity and spike in unemployment has left the U.S. economy more vulnerable. It remains to be seen whether there are any hidden vulnerabilities in the system,” the portfolio manager for BlackRock’s Equity Dividend Fund told MarketWatch, in emailed answers to questions sent ahead of the Memorial Day break.

He has got a few more worries, such as whether the world will see a second wave of the virus and the vaccine odds, plus rising U.S. and China tensions remain a point of concern for investors.

DeSpirito added that when it comes to stocks, absolute valuations, which calculate present values of businesses by forecasting future cash flows, “are not cheap. That said, stocks are still very attractively priced when compared with bonds. The implied equity risk premium (the expected return on stocks over bonds) is still quite high,” said DeSpirito.

His stock picks include a mix of stable health care, technology and consumer staples businesses and a mix of more cyclical financials, energy and industrials companies.

If the virus “continues to wane,” and activity starts to normalize, S&P 500 /zigman2/quotes/210599714/realtime SPX +1.05%  earnings estimates for 2021 should “approximate the original estimates for this year.

“A recession shouldn’t really change either the long-term growth of the economy, the earnings power of the S&P 500 index, or the valuation of the market. The market always overshoots in corrections,” said DeSpirito.

The market

On the heels of the Memorial Day break, the Dow /zigman2/quotes/210598065/realtime DJIA +1.44%  , S&P /zigman2/quotes/210599714/realtime SPX +1.05% and Nasdaq /zigman2/quotes/210598365/realtime COMP +0.66%  are soaring, alongside European stocks /zigman2/quotes/210599654/delayed XX:SXXP +0.88% and those in Asia, with the Nikkei /zigman2/quotes/210597971/delayed JP:NIK -1.06%  and Hong Kong stocks /zigman2/quotes/210598030/delayed HK:HSI -1.84%  up over 2% each.

The chart

The rate of U.S. job losses may have slowed in May, according to this chart from the Dallas Federal Reserve:

It is compiled from an online household survey — the Federal Reserve Real-Time Population Survey — that documents labor market trends in real time and at a higher frequency than official employment data.

/zigman2/quotes/210599714/realtime
US : S&P US
3,185.04
+32.99 +1.05%
Volume: 2.40B
July 10, 2020 4:20p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
26,075.30
+369.21 +1.44%
Volume: 338.17M
July 10, 2020 4:20p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,185.04
+32.99 +1.05%
Volume: 2.40B
July 10, 2020 4:20p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
10,617.44
+69.69 +0.66%
Volume: 3.19M
July 10, 2020 4:31p
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/zigman2/quotes/210599654/delayed
XX : STOXX
366.83
+3.19 +0.88%
Volume: 0.00
July 10, 2020 5:50p
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/zigman2/quotes/210597971/delayed
JP : Nikkei
22,290.81
-238.48 -1.06%
Volume: 0.00
July 10, 2020 3:15p
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/zigman2/quotes/210598030/delayed
HK : Hong Kong Exchange
25,727.41
-482.75 -1.84%
Volume: 2.14M
July 10, 2020 4:08p
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