The ASX is on the cusp of a new bull market! To think we hardly had time to get comfortable in the coronavirus bear market and it appears the downturn might be over.
But the speed in which the S&P/ASX 200 Index (Index:^AXJO) is rebounding since it hit a trough last month is worrying some experts.
It would be ideal if the market took a bit more time to consolidate before marching higher. The volatility gives us reason to wonder if the recovery from the COVID-19 pandemic is sustainable.
Is this all bull?
It was only three weeks ago that the ASX 200 slumped to a nadir of 4,546 points before staging a dramatic 19.9% turnaround. A gain of 20% or more will fit a technical definition of a bull market.
There is another 30 minutes of trade left, so there is every chance we will enter a new bull market before the day is through.
This recovery is giving brokers reason to downgrade some stocks as they worry that share prices may be running ahead of the still deteriorating fundamentals.
We have certainly not seen the worst of the economic data due to the coronavirus fallout.
Getting knocked down
One stock to get a recommendation chop is the James Hardie Industries plc (ASX: JHX) share price. Credit Suisse downgraded the US-exposed building materials group to "neutral" from "outperform" as it lowered its earnings forecasts.
"Due to short pipelines and proximity to consumers, we see a higher risk of an abrupt decrease in activity for companies such as Hardies which are more exposed to the Repair & Remodel segment (~60% US sales)," said the broker.
"This compares to new housing for example, where national homebuilders are freewheeling through order backlogs of 6+ months, albeit with growing risk of cancellations."
Credit Suisse's price target on the stock is $21.50 a share.
Running ahead of fundamentals
Meanwhile, a solid trading update by Netwealth Group Ltd (ASX: NWL) couldn't save it from a downgrade.
Bell Potter lowered its rating on the stock to "hold" from "buy" even as it lifted its price target on the stock following management's update.
"Following NWL's quarter update, we have raised our underlying EPS estimates by 2.6%, 4.3% and 2.9% for FY20, FY21 and FY22 respectively," said the broker.
"The revision is driven by an adjustment in our mark-to-markets, a better March quarter result, and offset by more conservative net-flow estimates."
Despite Bell Potter increasing the price target on Netwealth to $7.60 from $7.25, it felt compelled to downgrade the stock due to its recent outperformance.
