It would be unprecedented if a bear market were so short: Wells Fargo strategist

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A Wells Fargo strategist warns investors shouldn’t be too optimistic about the recent market rally.

Darrell Cronk, president of the Wells Fargo Investment Institute, told Yahoo Finance: “It would be unusual and unprecedented if a bear market or recession lasted only 30 or 45 days. It just doesn’t happen. “

On Tuesday, the Dow (^ DJI) and S & P 500 (^ GSPC) rebounded for the second time in a row due to optimism that coronavirus cases may have plateaued in some parts of the world and another possible stimulus package. By the middle of the session, the S&P 500 was approximately 24% above its 52-week intraday low of March 23.

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Cronk warns that markets still have to digest the high unemployment, GDP decline and first-quarter earnings that he believes have not been sufficiently reduced.

“The consensus still has a drop in profits of over 7, 8, 9% and the second quarter is currently at 15, 16%. This is far too low for what we will have in GDP contraction, ”said Cronk. “I think you still have some haircut on the profits that the market wasn’t as realistic as it should be.”

Cronk also expects an “unprecedented amount” of buyback and dividend suspensions this earnings season, adding, “I think the amount will likely surprise you down.”

Wild brown bear cub close-up

Wild brown bear cub close-up

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There is good news, he said. “When we open again, you have pent up the demand, on the other hand, it’s pretty open. And you have an unprecedented appeal, don’t you? That will hit the economy. “Said Cronk. “So there is good reason to believe that this could be a very, short, but very deep procession.”

In the current market, Cronk prefers sectors that have outperformed on the downside, including information technology, consumer discretionary and communications services.

“We would fade places like energy, industry, materials,” he added, as these three underperformed in this bear market.

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