Strategists remain 'irrationally bullish' on the stock market: Morning Brief

Tuesday, February 18, 2020

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Wall Street struggles to find a bear case for stocks

The stock market has started 2020 a lot like it ended 2019: on a tear.

Despite early-year worries over rising tensions in the Middle East and the recent outbreak of the coronavirus and still-unknown knock-on effects from the effective shutdown of China’s economy, stocks last week powered to record highs.

And this market action has led some Wall Street strategists to more or less conclude that right now, it is hard to build a credible bear case.

“We’ve postulated that the most compelling bull case right now is that there is no credible bear case at the moment, especially with evidence mounting that global economic momentum is improving — virus disruption aside,” wrote David Lefkowitz and the equity strategy team at UBS Wealth Management in a note published Thursday.

Lefkowitz notes that the firm previously highlighted an extended manufacturing growth patch, elevated valuations, higher interest rates, political risks, and a change in the Fed’s balance sheet expansion as potential risks to the outlook. Adding that, “invariably, the market will start to worry.”

And this was all written before the coronavirus became the most present risk to the global economy.

Nevertheless, the market has persisted.

On Friday, Michael Hartnett at Bank of America Global Research wrote, “We stay ‘irrationally bullish’ in [the first quarter].”

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Wall Street is bullish. (Getty)

Hartnett notes that investors aren’t euphoric, he argues the Fed is caught in a liquidity trap, and he expects the “rising probability of a ‘Minsky moment’ to coincide with peak positioning & peak liquidity in Q2 triggering [a] ‘big top’ in risk assets.”

In other words: things are going to get a lot more bullish before they get bearish.

And so it seems the best bear case Wall Street has right now is that investors could get a lot more bullish and that that would be bearish.

But the most recent periods of weakness in the stock market have revolved around negative reactions to ad hoc trade policy announcements by the President and slow increases in interest rates by the Federal Reserve.

And investor sentiment, as has been the case for almost all of the post-crisis period, has remained notably subdued and money has consistently moved out of the stock market during this rally. Meanwhile, some strategists have even posited that the U.S. stock market has become a “safety trade” amid worries about coronavirus, political uncertainty, and the traditional host of market concerns.

And, yes, reversals in sentiment can be violent and happen quickly. But it’s a tough environment for the bears almost any way you look at it.

At least for right now.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today


  • 8:30 a.m. ET: Empire Manufacturing, February (5.0 expected, 4.8 in January)

  • 10 a.m. ET: NAHB Housing Market Index, February (75 expected, 75 in January)

  • 4 p.m. ET: Net Long-term TIC Flows, December ($22.9 billion in November); Total Net TIC Flows, December ($73.1 billion in November)



  • 6 a.m. ET: Walmart (WMT) reported adjusted earnings of $ 1.38 on $141.7 billion in revenue missing estimates of $1.44 per share on $142.57 billion in revenue

  • Other notable reports: Advance Auto Parts (AAP)


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BEIJING, CHINA – FEBRUARY 1, 2020: People in face masks in an Apple store during an outbreak of the 2019-nCoV coronavirus, which started in Wuhan in December 2019; according to recent data, the number of people infected with the new strain of coronavirus has risen over 14,000, with the death toll reaching 305. Artyom Ivanov/TASS (Photo by Artyom IvanovTASS via Getty Images)

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