The glass is half full for Tuesday, with investors taking any positive bit of news on the virus front and running with it. That list includes vaccine news, lockdown easings across the U.S. and Europe, and Spain’s plans to crack open its borders to visitors again.
It may help also help morale to see a few NYSE traders return to the floor, for the first time since late March.
Our call of the day comes from BlackRock’s chief investment officer for U.S. fundamental active equity, Tony DeSpirito, who said that while he doesn’t see markets as too optimistic right now, there is plenty that investors may not fully understand about assets and the economy.
“The lockdown-driven decline in economic activity and spike in unemployment has left the U.S. economy more vulnerable. It remains to be seen whether there are any hidden vulnerabilities in the system,” the portfolio manager for BlackRock’s Equity Dividend Fund told MarketWatch, in emailed answers to questions sent ahead of the Memorial Day break.
He has got a few more worries, such as whether the world will see a second wave of the virus and the vaccine odds, plus rising U.S. and China tensions remain a point of concern for investors.
DeSpirito added that when it comes to stocks, absolute valuations, which calculate present values of businesses by forecasting future cash flows, “are not cheap. That said, stocks are still very attractively priced when compared with bonds. The implied equity risk premium (the expected return on stocks over bonds) is still quite high,” said DeSpirito.
His stock picks include a mix of stable health care, technology and consumer staples businesses and a mix of more cyclical financials, energy and industrials companies.
If the virus “continues to wane,” and activity starts to normalize, S&P 500 earnings estimates for 2021 should “approximate the original estimates for this year.
“A recession shouldn’t really change either the long-term growth of the economy, the earnings power of the S&P 500 index, or the valuation of the market. The market always overshoots in corrections,” said DeSpirito.
This article originally appeared on MarketWatch.
