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We’ve entered the next phase of the uncertainty cycle: Morning Brief

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Why Wall Street’s number crunchers have more conviction in their forecasts

“In economic parlance, the current environment is one of pervasive ‘Knightian uncertainty’ — that is, an unknown for which we cannot even quantify the odds of various outcomes.”

wrote in mid-March as massive parts of the economy were suddenly shutting down in an effort to contain the rapid spread of the coronavirus. In the span of a few days, Feroli and his economist peers revised their estimates for GDP from moderate growth to outright collapse, making “guesstimates” along the way as the circumstances were totally unprecedented and timely data was limited.

flying blind as the forecasting environment was made worse by corporate execs suspending or withdrawing their widely-followed guidance, leaving everyone in the dark. The strategists nevertheless hacked their forecasts (only to learn that they cut by too much).

Canaccord’s Tony Dwyer, Oppenheimer’s, John Stoltzfus and BMO’s Brian Belski — went as far as to suspend their S&P 500 (^GSPC) targets.

tail risks could come to a head. Uncertainty has returned to a much more manageable level.

A new chapter of uncertainty has begun. (Getty)

earnings season — and the COVID-19 pandemic not getting much worse, Wall Street’s number crunchers now have much more conviction in their analyses and forecasts.

overshot on the bearish side. Just on Friday after the better-than-expected personal income and spending report, JPMorgan and Goldman Sachs economists hiked their Q3 GDP annualized growth tracking estimates to +27.5% and +30%, respectively, from +20.0% and +26.5%.

reinstated his year-end S&P price target at 3,650, further adding that he sees the index climbing to 3,850 in the next 12 months.*” data-reactid=”42″>Also on Friday, BMO’s Belski reinstated his year-end S&P price target at 3,650, further adding that he sees the index climbing to 3,850 in the next 12 months.*

many of which appear stretched.

OpenTable restaurant activity and Homebase hourly worker data, Belski argues stock market investors should be mindful of bullish forces that are next-to impossible to forecast.

“From our lens, it is precisely the resourcefulness of US companies, let alone society itself, to adapt and improvise – a ‘pivot’ that does not easily show up in a quant screen, macro model, or valuation metric,” he wrote. “Bear markets and recessions create despair, and from despair comes hope. Part of that hope with respect to stock market performance is new leaders, new concepts, and new themes.”

He continued: “we believe it is extremely difficult in the current environment to employ a market forecast ruled by traditional academic variables. Yes, risk premiums, risk-free rates, earnings growth, and valuation metrics are not as meaningful over the intermediate term as process-driven strategists like ourselves would prefer.“

uncertainty out there.

nowhere near the levels we saw back in March.

Furthermore, this isn’t affecting behavior in just the Wall Street analyst community.

engaging the capital markets, businesses are ramping up durable goods orders, and consumers are buying houses. Everyone is increasing their wagers as uncertainty returns to manageable levels.

@SamRo” data-reactid=”57″>By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

  • 10:30 a.m. ET: Dallas Fed Manufacturing Activity, August (0 expected, -3 in July)

  • 4:05 p.m. ET: Zoom Video Communications (ZM) is expected to report adjusted earnings of 45 cents per share on approximately $500 million in revenue

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