Lowering S&P Target to 3,100 By December: Stifel's Bannister

down five percent. John authors Bloomberg opinion piece earlier on the President being at least partially responsible. He says this the chief culprit isn't Powell or fear of a second wave. The best single narrative is that Trump's growing political problems and the prospect of a democratic majority's ability to enact market unfriendly policy reached a critical mass. Let's get to somebody now who also shares at least some of this opinion.

Barry Banisters, head of Institutional equity Strategy at Stevel Nicholas. He's lowering his target on the SMB five hundred to December precisely because of election risk. Very great to chat with you this morning. Now, you are lowering your target. But is it too early for the market to be positioning this way. No, not really. I mean a lot can change in five months until the election. But we had a amazing rally off the bottom in March. I

mean we were up on NASDAC and SMP five. If you annualized those seventy seven days, it was four hundred and sevent annual gain. Um. I would say yesterday felt like a fever breaking in this case of speculative fever and our view as the market consolidates recent gains, awaiting more clarity on second half growth prospects. So Barry, give

us your sense. I mean that the last twenty four hours in the market, it's just been extraordinary again as Vanney was describing as exceptional declines yesterday in the markets. Now we bouncing back and I don't see any material news out there. How do you think about the volatility just over the past couple of days, Well, it is a little disturbing. Um. I've been doing this a long time.

I remember, for example, just in the last two major tops, we had large swings in the NASDAC in March of two thousand as it was topping at five thousand before falling something like seventy In the next two years, I believe we were up and down four hundred points day day on day back to back, which at the time

was more than five six seven percent days um. Also in the two thousand seven eight nine financial crisis, as we topped out in oh seven, you would see financial stocks up and down thirty and in a day back to back. So when I see this kind of volatility at the top and the speculative fever like Hurts, which is bankrupt considering a one billion dollar equity offering because

of the speculative buying that's going on. Or Chesapeake on the weekend of the sixth and seventh of June rising a hundred eighty two percent despite being nearly bank up. I think it's just too much money chasing too few good ideas. Venture J. Powell was asked that towards the end of the news conference the other day, asked if the FED was worried about a bubble or at least, you know, severe fraltiness. He didn't really answer the question in great detail. Is the FED worried about it? Well,

the FED has to be somewhat political. They you know, they can't say things that are not socially correct, but the reality is uh and we analyzed it in a report that came out last night. There's a concept in bonds called convexity. It's abnormally strong bond price changes as you reach lower and lower levels of yield. The same applies to equities. We have what's called a negative real yield, meaning the ten year yield minus inflation is a negative number.

Imagine that's a starting point for a discount rate for earnings that gives you an enormous valuation. So what we have seen through convey City in the equity market with negative real yields is a huge spike in the price to earnings ratio in just the last few months. And that's well in front of the growth and earnings and so I I think it would be wise to step back a minute and just wait for the growth signs

in the back half. We did a lot of damage to the economy with the shutdowns, and we'll see what the damages as we try to grow in the second half. Al Right, Barry, So, as you know concerns amount in the marketplace, here are we kind of going back to that strategy where let's get out of some of these cyclical sectors and maybe into more defensive sectors such as utilities and so on. Mm hmmm, Well, growth is its

own defense. But then the growth relative to value which you think about is like high price to book relative to low price to book stocks or technology relative to financials. For example, growth relative to value is that one of only three levels of overbought seen in one hundred years of monthly data that we have going back to the early nine twenties. So growth is its own defense. Yes, you can grow, and you deserve a high multiple for it, but you're paying an awful lot for that relative to

these sort of cyclical industrial value names. On the defenses which you mentioned, like utilities or healthcare or food companies and so forth. We have seen cyclicals vastly outperform these defensive stocks since the top of defensives in March nineteenth, which was only two days before the market bottomed, two trading days. And so in effect, I do think we're

over bought on cyclical and oversold on defensive. And I do look for, uh, some disappointing news to cause the market to pull back within a range, but not a big one. So we're saying around a five percent trading range of yesterday's close is what we had expect into the summer. Hey, Barry, thanks so much for joining us. We always appreciate your thoughts and insight. Barry Banister, he's had a uh institutional equity strategy at Steeple based in

Charmed City, that's Baltimore, Maryland. Vannie, I look at the volatility here and I'm just not sure. You know, we've had that just extraordinary sell off yesterday that really felt significant, um and you know, not just a normal saut but something different. Yet we bounced back today and I'm not sure on what news per se, but it's just interesting to note, if nothing else, the volatility definitely is shaking

out of positions. You heard Barry, though, there's going to be a trading range of five percent, so we may see many many more days like this through the summer. And interestingly, Barry, while he's lowering his target, he's still looking for thirty one by December, which we should note is above where we are right now on the SMP exactly. We're thirty sixty eight on the SMP. We're up two point two percent today on the SMP. This is Bloomberg.

So let's get to our next guest, now, somebody who knows a lot about what's going on around the country in terms of the virus. Lawrence Hour is JOHNS Hopkins University, a system professor of emergency medicine doctors. Our thanks for joining us once again, always thrilled to get your updates. Talk to us about how reopenings and even the protests may have impacted the spread of COVID. Absolutely so, we are seeing states moving UM towards reopening broadly across the

country UM, all the while still seeing hotspots continuing. The hot spots seemed to be moving from major cities UM in some circumstances to more rural areas. But we're seeing I think as many as fourteen states across the country having their highest seven day average in new cases, which is concerning since many of those are the same states

that are you know, broadly reopening. The protests will definitely continue to to be a factor in driving spread and transmission UM, although we've heard reports that processors are working very hard to ensure that they're doing the best they can to social distance in the protest to continue to wear face coverings UM but we do know that these events will be drivers of transmission. Is there anything that

we've learned about some of these newer cases. Are they any different from the original wave or is it just that same old virus UM. The virus we've heard is not actually mutating that much from from the recent research UM, so it is the same virus. I think what we're learning is how to care for these patients better. We're learning a lot more about how the virus acts in the body and then how to manage patients UM. We also are seeing that the social distancing and masking and

other public health interventions are working. So that's really important to driving down that UM spread and flattening the curve, which we are still working to do. We have to continue to protect hospitals and health systems in the second wave. Should lockdowns be continuing? Dr Saur, I mean if if if it was only a question of public health, would you suggest that that should be the case. I think we need to be very careful when we think about reopening. We don't have a ton of new tools in our

tool kit right. We don't have a vaccine yet, we don't have a lot of new therapeutics that we know work very well, um, and we do have a very susceptible population still, so a lot of people across the country still have not gotten COVID. So we have to consider the fact that as lockdowns are relaxed, that we will see another increase. Now it may be that we see in warmer weather less spread. We we don't know a lot about, um how the seasonality will affect this virus.

But given the fact that so many people in our population are are still susceptible, we have to be really

careful with how we consider reducing lockdown. So, Lauren, I think you know, most Americans are at this point now, and maybe many government officials are at the point where we have to weigh, you know, the economic impact of complete lockdowns versus um you know, the health risk of reopening here is it is it the belief within the medical community that you know, our reopening can occur, but it's has to be following the protocols of mass of

social distancing, of you know, tracing, tracking and tracing. Is that probably the preferred way to go? Yeah, I think no one, you know, especially us in the health field and in the public health field. We we understand the impact that these lockdowns can create on on many other aspects of health and public health to not just the economy.

So we understand that the lockdowns have to stop. I think the challenge is that we have to make sure that people are willing to reverse course if necessary if we start to see massive amounts of new spread UM and our health systems get bogged down. And I think people have to take these other activities seriously. Social distancing wherever you can, UM not you know, not leaving your mask at home and running to the store anyway, or UM making sure that you're using those good hygiene practices.

So those have two people have to be really diligent about that if we're going to safely and carefully reopen talk. So I'm not sure if you had a chance to have a look at the Wold Street Journal reward that New York's response to the coronavirus actually made the pandemic. Worris studied that the Wolstreet Journal conducted, And would you have any insight into whether that's now changing, whether responses

will be different in future to pandemics. I haven't seen that um that Wall Street Journal article yet, but I caution against sort of armchair quarterback in the New York response, I mean, I think it was one of the earliest, you know, largest hits on a major city, and UM, many people in New York did a ton of work to ensure that we save the most lives, that people were protected, and that rapidly issued guidance was implemented effectively.

I think we're going to learn a lot of lessons from the New York response, and I think people are already making changes based on what we saw working and not working. UM, But I hesitate to say that that it made things work. So Lauren, just give us an update on kind of where what you're hearing within the medical community, the HEALTHCARECUM energy about kind of where we are with some treatments UH and maybe even some vaccines. Yeah,

there's a lot of work being done in both areas. UM. You may have seen the recent news that the rem doze vere drug that has was um on in multiple clinical trials UM early in the pandemic UM has some really promising UH data and that it that it may reduce UM morbid immortality and may UH improve hospital stays,

which is great. UM. I think that's it is preliminary data, and I think we have a lot of lessons to learn about or sorry, a lot of research to do on um Rem does a vie, but it is a promising drug that we now have under emergency use authorization in our toolkit UM. There's a lot of other drugs being studied in clinical trial. We're looking at convalescent plasma as a possible option UM and those studies are running

broadly across the country and across the globe. And people are doing a ton of work on various vaccine options, different platforms, testing vaccines that may be further down in the pipeline, and developing new models for vaccine development and distribution. A ton of work left to do, but some promising option. Briefly dr antibody testing. Is it to the point yet

where we can trust results? I think there's still too many questions of antibody testing UM, particularly in what it means for lasting immunity and so what what do you do with that information that you get from an antibody test UM. I think it's it's very early in what antibody tests can and can't be used for and how UM reliable and valid the results are. And there's so many different types of antibody tests out there, Um, it's really hard to message what that information means for the

person receiving it. Lauren Sour, thanks so much for joining us. We appreciate it as always. Lauren Sour, Assistant Professor of Emergency Medicine at Johns Hopkins University. We are so fortunate to have the smart folks at Johns Hopkins and others join us to give us the medical perspective. The Bloomberg School of Public Health is supported by Michael Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies. It is time for

Bloomberg Opinion. We're joined by Bloomberg Opinion Comms Jim Bianco. He has a president and founder of Bianco Research. Jim, thanks so much for joining us here. I want to get a sense, you know, you've been a very cautious

outlook on the economy and on the markets. Here. I want to get a sense of kind of what your takeaway is from, you know, the equity market trading we've seen over the past couple of days yesterday seemed to really signal uh and awakening by the market of the risk too that are really out there in terms of the economy yet today we kind of bounced back. What do you what do you make of what's going on

in the market. Yeah, yeah, I have been a bit cautious on the economy, and I think that has been more correct than not, and that has translated into a cautiousness in the in the equity markets, and that has

not been more correct than not until yesterday. I do think what you've seen happened in the stock market in bigger picture has been a federal reserve and a federal government, let's not leave them out of the equation, the Treasury Department promising bailouts, promising support, basically telling everybody that we need the markets to go back up. Chairman Paul underscored that at his press conference earlier this week when he refused to even answer Mike mckie's question about the stock

market being overvalued, suggesting that they don't care. They're more interested in getting markets up in order to give confidence and financing to keep the economy going, and they fled to a big speculative rush in the markets, which I think reversed yesterday. Down six percent in a day. Doesn't happen because you had you had bad news about a second wave. It also happens because you had a lot of speculative fever in the market that rushed out yesterday

as well too. But Jim, if markets carred that much about trying to tell the Feds on things, to give the FED a message, would they really be back up two percents already today, unless, of course, you know, we'll thinking of markets as a monolith with that question, and they are not a monolith right now. There is a certain aspect of the market that is, and that is that small retail trader that is really rushed into the market in the last couple of months, maybe even in

the last year or so. Yes, they matter. They're big in total, even though their trades individually are small, and prices are set at the margin, and they are the player at the margin, so they are in the market. So I wouldn't necessarily look at the market day to day machinations, even when it's followl like this and suggest that there's a big economic meaning to it. Jim. You know, we seen, as you have noted, you know, the FED kind of being early, being aggressive and kind of quote

unquote backstopping this market. And we've actually also seen some decent federal stimulus at three trillion dollar stimulus bill was just historic. Does the market need to have another federal stimulus bill um coming out of Washington. I think it's gonna need to see either signs that the economy is seriously rebounding or it's going to need more stimulus. In other words, if if it gets that rebound, it won't need it. Now, let me be clear on what I'm

talking about. I'll give you a statistic. One statistic. At the bottom of the two thousand eight recovery, output in the economy was of what it was at the two thousand seven high. We only dropped four That was enough to have the stock market and produce a ten percent unemployment rate. This time around, we're thinking that the economy dropped at its worst point. Maybe it's getting better, but if it doesn't get back to ent of output, uh,

it will be a very bad recession. Mar de Blasio said that, Uh, this writership on the New York City subway was up in the last week. It's still off of its high. It's got to get back to in order for there to be some kind of semblance of normal returning. If you get that, you don't need the stimulus.

Short of that, I do think that the market and the economy will be disappointed if there is a not any more stimulus coming now, Jim, Treasury yields of un run this movement in stocks right, was this also response to the FED chair? Uh? Yeah, I think treasury yields have two things going for them. Are are bigger picture going for them, and that is there's gonna be a tremendous amount of issuance three trillion dollars just this quarter,

which we're working through right now. What has happened over the last eight ten weeks is the Fed had been buying more than had been being issued. So this bond market was in an unusual situation that it was actually shrinking in size when you remove the Fed out of the equation, and that had been holding prices very steady. It was in the last two weeks or so that issue its started to overtake what the Fed was doing

in yield started up. But Wednesday, Chairman Paul said that their bond buying has probably found the floor and around a hundred and twenty billion dollars a month, so it's not going to get any lower than that. A trillion dollars a year is what that works out to. You know, it's a hard number to understand, a trillion a year, and that I think gave the market some support, which

is why you saw the rally and bonds right after that. Oh, we just found for sure we've got at least a trillion dollar buyer of bonds as we move forward, helping to alleviate some of that crush of supply that's coming. And that's what I think was the positive news for the bond market this week. Jim, it is always fascinating to speak with you. Thank you for that. Jim Bianco is president and founder of Bianco Research, of course also

Bloomberg opinion columnist and Paul. It is fascinating because the worst of the corporate spreads have seen a retracement this week of almost fifty percent, so they've been big moves underneath the hood of the bond markets. Also, what Jim was talking about their the retail Trader. We have a fascinating story on the Bloomberg today about the bar Stool Sports founder who's find him on Twitter. It's kind of fun, yeah,

I mean it's it's just a strange story. Apparently, you know, he's he's bringing huge numbers of people into the retail day trading side of things. But he's now decided that he's going to be a buy and hold kind of guy. So we'll we'll see what Dave Portnoy does next. Well. One of the most key fallouts from an economic perspective of this pandemic has been the job loss is just extraordinary job losses across the US and across the globe.

One of the questions for investors and economists is how much are those or how many of those jobs are temporarily lost and they'll come back as the pandemic wains, and how much of those are structurally lost at i e. They will not come back. To answer that question, we welcome you Van Roya. He's a senior global economist for Bloomberg Economics. He's based in Frankfurt, Germany. Ifan, thanks so

much for joining us here. I know you guys have done some work here on kind of taking a look at the unemployment and you know it's kind of the structure of that unemployment. How much is temporary and how much is permanent? What did you guys find? Yeah, many

thanks for having me up all um. Yes, indeed, we have looked at at unemployment increases in advanced economies, and as a as an example, we took the United States and we have found busily that the probability of about certain percent of workers to have a lot of their jobs is very high that they will remain an unemployment while certainly percent of the workers that have lots of their jobs are likely to get im back to employment

very soon. We would that result in in terms of the overall numbers, It wouldn't be obviously a thirty resented employment rate, would it. No, No, it's the absolute numbers of the people who love their jobs. So we're talking to in the COVID nineteen crisis in the United States, for example, about nineteen million people, so as third of it basically, which would translate into six million people where the probability in getting back to employment will be elevated

to remain an unemployment. So pre what are we going to get a sense of kind of how this plays out. I know you guys are again kind of forecasting here, but is this something that we're just gonna have to wait for the numbers to come in and to see whether you know, those furloughed workers are brought back or you know some of the service sector employees are brought back. Is it just something that we have to wait and

look at the data. We're not hearing much from the companies, are we Yeah, So how we think about it, we can decompose basically the job losses that we have observed into three factors. The first factor, basically we are demanded lie factors. When you think about shops just closing and people are not able to buy in these jobs, the

workers will lose their job. At the moment when the shops open again and uh and people gain more confidence and uncertainty is reduced of their future income for example, people will start buying again and these jobs are likely to come back very quickly. The second one is what we think about is outside option of undeployed workers. You you think about the Cares Act, which is quite quite generous in the United States, so a lot of workers do not really have the search efforts for employment at

the moment. Once this is being reduced, the search efforts to get a new job are also increasing. So this is another another thing where where we think that employment can resume very quickly. The problem is that the third source of unemployment, which is we call a reallocation of workers and perms. So when you think about now the behavior of people not going to restaurants anymore, um ordering via e commerce, we have seen a lot of job

creation actually in these uh these companies. Amazon has hired a lot of workers because they face higher amount At the same time, the mortar and bricks retailers have have lost substantially their job there. So if this will will persist, it's very difficult for for people who who lost their job due to this reallocation shark to get back into a ployment because they simply lack the skills to get to get a new employment. So this is how we

think about it. Iftent is due to this reallocation shark, it will be a painful re restructuring of the economy and it's very likely that this will firstist with the second half of the year. Beyond those six million people that you say won't go immediately back to work, which is a phenomenal number of people. What about wages do they hold up at a time when companies and small businesses in particular are under a little bit of pressure.

That's a very good question, and how how wages will evolve on the on the one hand, you have the wage pressure going going down because of the increased pool and unemployed people. This naturally give downward pressure on wages. On the other hand, you have you highest in more productive industries. So this is also due to the reallocation shock I just mentioned. So in Amazon, basically wages are usually higher than in the in the unproductive factors that

now recently are are being exposed. So the overall, if you look at hourly wages for example, on the employed work for it. At the moment, they have significantly increased in in April in the United States because simply productivity in these new new uh new jobs created are higher. So in the short term I would say, um that the average wages are increasing. In the medium term, it remains to be seen what we see in the numbers, which which factor basically is dominating and how quickly people

can go back to work. If puran what's this mean for policymakers as we come out on the other side of the pandemic, what do you guys expect to see. Yeah, it's a very challenging situation for policy, economic policy, both for monetary as as well as fiscal policy. So in the in the first hit of the shock on to the shutdown, to the lockdown measures. UM. Monetary policy has provide a lot of liquidity, which was the right thing to do to try to keep the economy above water.

As well as fiscal stimulus. We have seen a lot of a lot of very large fiscal spending programs UH and and this is very very appropriate to UH to fill the gap of the short falls from the demand and the supply shock. So the first type of shock that we have seen, for the real location shock, you want to have a policy mix UM that says, Okay, we have to keep the economy above the water, but in the same time we have don't have to provide

a structural change when it's happening in the economy. So you don't want to keep firms alive that have a business model which is UH pre pre pandemic style. So so there there's a mix of a balance that that

economic policy has to address going forward. To strike a balance between okay, we have we will have to see some bankruptcies and a new structure of the economy, while at the same time not losing too many jobs and UH and and have a high structural unemployment al Right, Well, we will be watching the data very very closely, and luckily we get weekly initiatables claims as well as obviously the monthly payrolls report, and we're waiting on each with

beated breath, as will you. Born van Wyre, Senior Global economist at Bloomberg Economics, SEE is based in Frankfort. And of course problems with employment in Europe as well post pandemic, and indeed we don't even know for a post pandemic or when we will be a post pandemic, so all of those questions yet to be answered. That said, we can say that there was a little bit of good news in the initial jobless claims in the sense that continuing claims came down just ever so gradually. Paul, Yeah,

exactly right. I mean, I think the for the tenth week in a row we had a lower job was claims number. Still million a half is a million and a half too many, but again kind of this, you know, slowing growth in the job's claims, and that's kind of the silver lining. Yeah. And obviously, you know, at a time when worker safety is important, we do need to keep an eye on wages too, because there shouldn't be a trade off one for the other. Indeed, thanks for

listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn. And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.