Wall Street analysts haven’t been very helpful in recent weeks. And you can’t blame them as the whole world has been confronted by an unprecedented crisis that doesn’t fit well into any forecasting model.
Waiting for more of this kind of guidance, most analysts have been in a holding pattern with their earnings forecasts. (And because of this, the market selloff has created the illusion that stocks are cheap.)
Unfortunately, that guidance doesn’t appear to be coming.
On Tuesday after the closing bell, FedEx (FDX) said it was suspending its earnings forecasts. Earlier that day, L Brands (LB) withdrew earnings guidance. Before that, United Airlines (UAL) and Royal Caribbean (RCL) both suspended guidance. All blamed the unprecedented uncertainty caused by the coronavirus pandemic.
Gosh, even the Federal Reserve announced on Sunday that it was suspending its summary of economic projections, saying “it really is depending heavily on the spread of the virus, and the measures taken to affect it and how long that goes on. And that's just not something that's knowable. So, actually writing down a forecast in that circumstance didn't seem to be useful.”
What’s worse than bad news?
One prominent Wall Street stock market strategist has thrown in the towel.
“We are suspending our valuation-based S&P 500 (^GSPC) target of 3,440 until we can come up with a proper SPX operating [earnings per share] as social distancing mandates shut down economic activity, and unprecedented fiscal and monetary policies are changing by the day,” Dwyer said in a note to clients.
It’s an incredible decision, as most paying clients expect a year-end price target, even though strategists often emphasize focusing on the longer term.
“Until we see some way to figure out the EPS, we are going to base our financial market plan on human nature, which means we only know there has been an initial panic low after we have seen more than a one- or two-day bounce,” Dwyer said.
And so it’s the blind leading the blind. And that makes for a lot of uncertainty, which in turn holds down stock prices.
“Not even health experts understand what this is or where it is headed, and that is the worst possible outcome for investors,” Leuthold Group’s Jim Paulsen wrote on Monday. “Give me bad news any day over complete uncertainty.“
Sure, uncertainty is part of investing. But just because you understand that doesn’t mean you have to like it.