Back in February we predicted that March was going to be an insane month, but really we had no idea how crazy it was going to be.
That the headlines were much worse than anyone could have imagined makes it all the more surprising that stocks remain near record highs.
Photo: David Paul Ohmer via flickr
It also shows the folly of identifying “risks.”All that being said, here’s the commentary on the coming quarter from BofA/ML’s David Bianco:
Depending on how things progress, we think investors should be prepared for the potential of even greater headline risk in 2Q in the form of (1) higher oil prices, (2) supply chain disruptions from Japan actually showing up in some companies’ results and guidance, (3) a US federal government shutdown, (4) further sovereign downgrades, (5) municipal budget and refunding issues, and (6) increased concern over interest rates at the end of quantitative easing in June. These concerns could significantly pressure the market in the near-term. Thus, we see 1350-1400 as the high-end of the trading range for the first half of the year, and do not expect the market to go much higher until late in the year.
As for what you should be doing this quarter…
Market dips of 5% are common and happen several times a year. However, we do not expect a better entry point than 1250-1300, as we anticipate strong support at these levels. We acknowledge the many headline risks, but we are focused on the risks of oil prices hitting record-highs and surging interest rates. Remember that higher oil prices are a net positive for S&P 500 earnings as long as they do not cause a recession, the Euro (Dollar) has been stronger (weaker) than expected, European financial exposure is limited and supply chain disruptions in electronic components and autos are likely to have little long-term impact for the overall market.