By Callum Keown
The short-term path of U.S. equities is unclear but the S&P 500 should move to new highs on a 12-month basis led by cyclical stocks beaten in the coronavirus downturn, BTIG strategists said.
The upward momentum of equities continued at the start of the week with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% climbing 1.7% on Monday and the Nasdaq /zigman2/quotes/210598365/realtime COMP +0.16% reaching a new all-time closing record.
BTIG strategists led by Julian Emanuel said that while the short-term was unclear, on a 12-month basis the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.11% should move to new highs led by cyclical stocks that were beaten in the coronavirus downturn and resurgent off the bottom.
Investors have been “historically whipsawed” in recent years, with 2018’s volatile bull run ending with a non-recession bear market in the fourth quarter and 2019’s “Fed-inspired” bull market running into February’s coronavirus crisis bear market,” the BTIG analysts said.
“The cyclical rip since Mar. 23 has been so conclusive as to say that stocks are in a new bull market,” Emanuel said.
Unprecedented stimulus, optimism over reopening from the coronavirus and “record cash on the sidelines” pointed to further advances, he added. However, pre-election tensions, the misinterpretation of downbeat news for an “economic all-clear,” and the mixed record for stocks when a secular shift from value to growth begins, made the argument for a pause in the upward trend, or even a pullback to the 200-week moving average — 2,681 — the team said in a note.
“That said, whether the S&P 500 continues the bull trend, moves to sideways/pullback mode or even becomes a new bear, on a 12-month forward basis cyclicals beaten in the downturn and resurgent off the bottom should continue to lead,” the team said. While the “winners” during the coronavirus slump were likely to lag.
When it comes to potential outperformers, the strategists screened for stocks down 60% or more between Feb. 19 and Mar. 23 and up 60% or more since Mar. 23 — and stocks in the bottom 20% of S&P 500 return year-to-date with a positive earnings per share forecast to 2020. The list included mass media company ViacomCBS , clothing company PVH Corp /zigman2/quotes/208313660/composite PVH -2.59% , real estate investment trust Ventas /zigman2/quotes/206376229/composite VTR +2.19% and Darden Restaurants /zigman2/quotes/200092615/composite DRI -0.89% . The team’s underperformers were stocks in the top 20% of S&P 500 return year-to-date, yet which were in the bottom 20% since Mar. 23, and included streaming platform Netflix /zigman2/quotes/202353025/composite NFLX +2.60% , Gilead Sciences /zigman2/quotes/210293917/composite GILD -0.36% and retailer Kroger /zigman2/quotes/206215053/composite KR +0.90% .