The markets are not in good shape.
We’re on pace to have the worst December in history, as markets worldwide have plummeted over trade fears, geopolitical uncertainty and rising unrest across the US’ political landscape, including the partial shutdown of the government. US Treasury Secretary Steve Mnuchin’s attempt of calming fears by calling the CEOs of six large US banks – Goldman Sachs, Bank of America, Citi, JP Morgan Chase, Morgan Stanley and Wells Fargo – sent markets into a further tailspin. But even amid talk of a possible recession, top analyst Colin Sebastian expects a more optimistic outcome. The analyst looks at a handful of Internet stocks, and sees Activision (ATVI), Alphabet (GOOG) and Amazon (AMZN) as “’best bets’ in a rebound.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Colin Sebastian has a yearly average return of 17% and a 59% success rate. Sebastian is ranked #40 out of 5,079 analysts.
Over the past four corrections, the analyst’s data shows Internet stocks growing an average of 11% in the subsequent six months. While Sebastian believes Facebook (FB) has “likely lingering overhangs…that could dampen the recovery,” he says, “Amazon is the best overall performer” with a +30% average return six months after a correction.
Sebastian reports that over the past 30 years, the average market correction lasts about 70 days (excluding the 2000 and 2007 recession). He says we are three months into this correction, but fears of recession are growing as Google Trends show the number of Google searches for “recession” has more than doubled.
The analyst says investors should expect cautious guidance and outlooks “Clearly, earnings season beginning next month will serve as stock-specific catalysts, and investors are already concerned that management teams will provide cautious outlooks given macro uncertainties. In addition, the prevailing view is that companies will take advantage of already-lower share prices to set ‘low bar’ expectations with the assumption that downside growth and/or margin scenarios are already baked into shares.” Sebastian says this “approach makes some sense, although we note the risk of ‘self-fulfilling prophecies’ as markets can interpret such caution as confirmatory evidence of a slowdown that may or may not actually exist.” While sentiment is negative and trending worse, Sebastian says that the data is actually strong, with “healthy trends in e-commerce, online advertising and video game sales to close out the year.”