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Reality bites. The Federal Reserve’s cautious outlook and worries about a second U.S. virus wave are spooking investors for Thursday.
“The idea of a drawn-out recovery put out by the Fed rather flies in the face of the V-shaped reopening trade that has taken hold in markets,” says Jasper Lawler, head of research at London Capital Group. Still, we’ll need to see “more than a day or two of weakness” in big leaders — Facebook FB, -0.81%, Amazon AMZN, +1.79%, etc. — for a bigger correction, he says.
To be sure, this rally was overlooked by a chunk of Wall Street. On Monday, Bank of America Merrill Lynch’s head of U.S. equity and quantitative strategy, Savita Subramanian, issued a “mea culpa” for missing that stock run, upping her year-end S&P 500 target to 2,900 from 2,600.
But given that the S&P 500 is currently hovering just under 3,200, the bank still looks pretty cautious. In our call of the day, MarketWatch spoke to Subramanian about the signals she needs to see to get more bullish on stocks.
For starters, she is looking for a steady improvement in the employment picture, outside of an “immediate rebound” off really weak numbers, such as was seen with the surprisingly good payrolls data on Friday.
“I think we would also need to see some sign of a recovery among consumers. It would be important to see what the millennial consumer behaves like coming out of this. Does the millennial consumer run right back out and continue new household formation or is there any sort of fallout from this that psychologically impacts this?” said the strategist.
“I think that the risk with millennials is that they’ve had two really bad things happen to them during key formative stages. They graduated from college during the global financial crisis, so they had massive student debt and were basically forced to live with their parents,” Subramanian said.
Coming out of that crisis, they are now taking a hit from the pandemic. “They’re the biggest spending cohort in the U.S. today, and I think the risk there is that they don’t spend as aggressively on big-ticket items as we did (Gen Xrs). Even though we were relatively scarred graduating in the 1990s, we still spent a lot more money and we’ve been big spenders,” she said.
Given an uncertain market environment, Subramanian said the best option for individual investors with more than a short-term view is big-cap U.S. stocks. “The No.1 mantra is just don’t panic sell and don’t panic buy, just have a long-term horizon,” she said.
The market
Dow YM00, -1.95%, S&P SPX, -0.53% and Nasdaq COMP, +0.66% futures are skidding, alongside European stocks SXXP, -2.15% and oil prices CL.1, -3.66%. A 3% drop for Aussie stocks XJO, -3.05% led Asian markets south.
The tweet
Here’s what that is all about.
The chart
The below chart from Jesse Felder, who blogs at the Felder Report, notes soaring interest among young investors in financial markets recently, which he partly credits to commission-free brokers. But their can’t-lose attitude worries him.
The buzz
Data ahead are expected to show another 1.6 million Americans filed for unemployment benefits last week. Producer prices data are also due.
German airline Lufthansa LHA, -5.87% reportedly plans to cut 22,000 jobs.
Disney DIS, -1.38% plans to reopen its Southern California parks on July 1, with conditions, while Stagecoach and Coachella music festivals are canceled for 2020. Meanwhile, President Donald Trump will hold his first rally in months in Oklahoma next week.
On Twitter TWR, -2.54%, Trump has also demanded Seattle officials “take back” a police-free protest zone, while another statue has been pulled down, this time of the Confederate President Jefferson Davis, in Virginia.
Random reads
Another police reality television series is going off the air.
Woman who walked in space reaches ocean’s depths.
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