Credit Suisse Says These 3 Things Need To Happen Before The Market Will Hit A Bottom

These are the factors to watch for before the market turmoil will end. 

Despite a couple of up days, the stock market has been hammered this week as the coronavirus crisis has deepened.

The S&P 500 is down -11%, the Dow is down -13%, and the Nasdaq is down -9% for the week as of Thursday, submerging deeper into bear market territory.

The headlines are grimmer by the day. Large parts fo Europe are on lockdown. The U.S. is seeing its own restriction measures, with the border with Canada closed and with California residents ordered to stay home by governor Gavin Newsom today.

The numbers of those infected with COVID-19 continue to rise, and fear is rising right along with them.

As the coronavirus continues to roil markets, Credit Suisse slashed its forecast for the market for the year and said that earnings growth for U.S. companies will be near-zero.

According to the firm, what started as a supply chain disruption from China as it grappled with the virus outbreak last month has evolved into a “global demand shock,” and there’s likely “further downside to stock prices over the near-term” before the stock market turns a corner. 

But what could that look like?

The firm said that three conditions would be required for a trough to form in global stocks: clear-cut fiscal easing conditions in the U.S., which happened last Sunday when the Fed cut interest rates to zero, a peak in daily infection rates, and a trough in global purchasing managers indexes, which the firm believes could happen in May.

Credit Suisse’s research analysts said that during the SARS crisis, markets bottomed out the same week new infections hit a peak. 

“We expect a V-shaped recovery ultimately and would be buyers of equities on a one-year view; we believe markets will rise 15-20% over the next twelve months,” the analyst wrote. “Historically, when we look at exogenous supply-side shocks, markets tend to rise very rapidly from the trough (SARS, Kobe earthquake, Suez, 1987).”

The analysts, led by Andrew Garthwaite, also expect “massive” monetary and fiscal stimulus. “This should enable a V-shaped recovery that by the end of 2021 could make up for much of 2020’s lost growth,” the analyst wrote.

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