Stocks: A retrenchment of some of the recent gains seems likely - Charles Schwab

The last Schwab Market Perspective report, points out that the sharp rebound in US equity prices since the Christmas Eve low has been a welcome development for the bulls, but they warn “the pendulum may have swung a bit too far”. 

Key Quotes: 

“Equity investors have been cheering the sharp rebound seen since the end of last year, with the S&P 500 up more than 16% since the Christmas Eve low. We don’t want to be buzzkills and we enjoy rallies as much as anybody; but just like you can eat too much cake with bad results, equity gains that come rapidly after sharp corrections can have consequences as well.”

“We believed that U.S. stocks had gotten to oversold levels and were likely pricing in too great a risk of a near-term recession—so a rebound was to be expected. But some of the declines seen toward the end of last year were justified in our minds as economic growth has been slowing, trade uncertainties remain, government dysfunction persists, and corporate sentiment is deteriorating.”

“We don’t believe we’ll revisit the lows seen late last year if a recession remains a 2020 story, but a retrenchment of some of the recent gains seems likely. If a recession looks to be developing this year—and if there is no trade deal and additional tariffs kick in—those market lows could be retested (and beyond).”