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JPMorgan’s chief U.S. equity strategist thinks that the S&P 500 could return to record highs by early next year if the U.S. policy of efficiently containing the coronavirus outbreak works and the government rapidly moves forward with fiscal stimulus.
Last week was pretty damaging for the U.S. markets even though they had a day of positivity. However, they ended the week in the red. Just for reminder, U.S. stocks finished the session on Friday following predictions from Goldman Sachs on economic growth in the United States dropping 24% in the second quarter. Dow Jones fell more than 900 points, more accurate, it declined by 4.55%, or 913 points at the close. 3M Co (NYSE: MMM) was the worst performer, plunging 9.50%. The Nasdaq 100 fell by 4.04% as the trading session ended. Copart Inc (NASDAQ: CPRT) dropped the most, 14.06%. The S&P 500 is at the moment far from its record highs. It lost 4.34% at the closing bell as FLIR Systems Inc (NASDAQ: FLIR) plummeted 18.73%.
S&P 500 Will Jump to 3,400 and Set New Record in 2021?
However, some think that this path could be reversed. JPMorgan’s chief U.S. equity strategist Dubravko Lakos-Bujas thinks that the S&P 500 could return to record highs by early next year if U.S. policy of efficiently containing the coronavirus outbreak works and the government rapidly moves forward with fiscal stimulus to buffer the approaching economic blow.
He added the S&P 500 could come to 3,400 in early 2021. That would actually be higher that the record it had on February 19 of 3,386. It is also 42% higher than the broad market average’s current level of 2,385.
The S&P 500 entered a bear market on March 12 when the bull expansion came to an immediate end. Novel coronavirus is still spreading fast and as a result, multiple companies are shutting down pulling down the markets with them. Economic and profit growth forecasts are pretty pessimistic thorough the globe. However, after the merciless selling wave, Lakos-Bujas says he sees a chance for stocks to return to record levels.
In his note to clients he wrote:
“Acknowledging that equity markets globally are now down 30-50% from their recent highs, and that investor positioning has become increasingly favorable, we see an asymmetrical return profile for equities with upside significantly higher than downside over the next year.”
U.S. Government Has to Carry Out Serious Fiscal Changes
In order for his scenario to play out Bujas says the American government has to go through, what he calls, a “comprehensive fiscal package promptly.”
The thing is, few days ago, the White House and Congress said they are scrambling to hash out the details of a massive stimulus package to help a U.S. economy increasingly damaged by the coronavirus pandemic. There had been hope on Capitol Hill that Congress could pass a deal this week, as President Donald Trump seeks a measure with over $1 trillion in spending.
Treasury Secretary Steven Mnuchin said the aid bill proposed by Senate Republicans should include direct payments to more individuals. In addition to including more people in the plan, Mnuchin apparently thinks that the amount of $1,200 per person is not enough. On the other hand, he proposed to give $1,000 per adult and $500 per child in two rounds.
Early Signs of Progress Are Here but Need Aggressive Fiscal Policy
Lakos-Bujas commented that “aggressive fiscal policy needs to be undertaken immediately,” noting that failure to pass such measures “would likely result in a broader capitulation of equities including the heavyweight momentum stocks.”
However, we have to be aware that there is another side of the whole story – more than 22,000 cases have been confirmed in the U.S. together with over 280 deaths reported, according to data from Johns Hopkins University.
Authorities in the U.S. have imposed measures to contain the number of cases and “flatten the curve,” which would keep the country’s health care system from being overrun by the outbreak.
“The spread of the outbreak in the U.S. will still remain a key concern. At the same time, there are early signs of progress being made of potential anti-viral treatment, though the outcome is still uncertain,” concluded the expert.