Scott Burrill - Market Notes

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Scott's Market Notes

What About Unknown Unknowns?

Mar 30, 2020

I hope everyone is well.

As a reminder, we have a skeleton crew working from our headquarters in NYC, with the majority of our staff working efficiently and effectively, according to our BCP. Our technology is working perfectly.

Markets indeed thought 32% off was a bargain, with the S&P 500 rallying 10.3% on the week, which is a significant move in any environment. Until proven otherwise, this is nothing more than a Bear Market Rally with the S&P 500 down 25% from the 52-week high.  

Last week saw a reversion in factors that previously underperformed.

As infectious rates climb in the US due to more testing, and as these painful headlines play out, barring no more uncertainty, markets will calibrate to the new normal within a higher volatility regime. The focus in volatility going forward will be on realized volatility.

Of concern, though, is what is the market, not pricing. The market is not pricing in a significant recession, emerging market crisis, nor a substantial reset in price-earnings multiples. With earnings season imminent, the Fed Put gone, corporate buybacks gone, what structural changes will this crisis do to GDP, which is 70% consumer-driven, and ultimately the value of the market?

In prior recessions and market resets, P/E's fall. Currently, the P/E is 16.7x and should the P/E ratio decline to 11.9; then the S&P implies a price of 1808.

The hopeful scenario until earnings revisions occur, and how soon and well the consumer-driven economy restarts is a broad trading range from 2187.50 to 2734.50, which equates to P/E multiples of approximately 14 to 18.

Let's use our tools to prepare for the coming week.

The S&P 500 Weekly Option Implied Move is + / - 205 points or 73.09% implied volatility with a range of 2746.92 to 2336.02.

The weekly trend remains down; however, the daily trends are shifting higher.

The focus will remain on the response to the crisis and daily changes in cases and locales. The Economic Calendar is significant, and the focus is on current economic data reflecting the shutdown.

Current Index Levels.

Take care and stay healthy,


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