Was this the shortest bear market in the history of the ASX?
The market tumbled this morning, taking its peak-to-trough drop to over 20% in the last three weeks. But the market made a stunning comeback into the green ahead of the market close.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 1.3% at the time of writing. Assuming it closes at this level, it would no longer fit the definition of a bear market, which requires a drop of 20% or more.
Is the worst over?
But it isn't all good news. The rebound may be fleeting and there's still a big risk of the market falling back into bear territory.
Some experts also believe investors should be selling into any market rally as the risk of a global recession sparked by COVID-19 will continue to pressure equities.
One stock that could be a target for profit taking is market darling Macquarie Group Ltd (ASX: MQG) after JP Morgan downgraded the investment back to "neutral" from "overweight".
Outperform to underperform
The broker noted that Macquarie was outperforming its peers, including big bank stocks like National Bank of Australia Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC), and fund managers like Magellan Financial Group Ltd (ASX: MFG).
"Unusually for a market correction, MQG has performed in line with the market over the last two weeks and outperformed most of what we would consider to be its peers and comparable companies," said JP Morgan.
"While, in our view, MQG is a more diverse business than in previous downturns and equity investments are a smaller percentage of the balance sheet, we don't think MQG will remain 'low beta' if the current downturn continues and its PER [price-earnings ratio] is starting from reasonably full levels."
Earnings risk
What's more, the broker thinks Macquarie will disappoint from an earnings perspective. While there's every chance that Macquarie will beat profit guidance for FY20 (management is tipping profit to be slightly down), JP Morgan thinks its FY21 guidance will not live up to lofty consensus expectations.
"Prior to the recent COVID-19 breakout we had believed that MQG's FY20 earnings guidance was increasingly conservative given a strong 1H20 result, supportive 3Q20 conditions, and continued AUD depreciation," explained JP Morgan.
"But we see risk that uncertainty on the economic and market backdrop will see it deliver tepid guidance for FY21 at the FY20 result in May."
The broker is now forecasting flat net profit for Macquarie in the next financial year. It had pencilled in a 4% increase before.
JP Morgan lowered its price target on the stock to $132 from $149 a share.
