Grim Forecasts, the Equity Rally, and Reignited Tensions with China

Halfway into an earnings season for the history books and analysts—much like the rest of the world—are still struggling to reach a consensus on what the future holds. The dispersion of estimates for S&P 500^® Index companies has spiked to levels not seen since the financial crisis as our “new normal” has meant massive losses for some and gains for others. Looking forward through the rest of the year though, it’s clear they expect to see some level of contraction each quarter, with Q2 taking the hardest hit. And they don’t expect GDP to survive unscathed; current Q2 forecasts sit at -27.5%. Our economy has been devastated, but the memo doesn’t look to have reached the major equity indicies where the S&P 500 is down just 11.2% and the NASDAQ is down only 1.8%. Could a look at past bear markets give any hints about the current rally’s future? Meanwhile, the U.S. value factor just experienced its largest drawdown in history, TIPS yields have turned negative, and oil investors are scrambling to close June positions quickly after U.S. oil prices pivoted from massive April losses to enjoy a five-day winning streak. And as tensions ratchet up between the U.S. and China and the public grows more concerned about the conflict’s impact on their wallets, we’re turning our attention to how heavily we rely on China for essential medical supplies. Is now really the time to reignite the trade war?