Economic news at “bottom” but “market valuations no longer as attractive”

Markets fell on Wednesday.

The S&P 500 fell 0.7 percent and the STOXX Europe 600 fell 0.4 percent.

A report from ADP on Wednesday showed that US private-sector employers shed more than 20 million jobs in April.

However, market reaction was relatively muted as many appear to be looking beyond April data.

“As investors, we see this Friday’s employment report, which will show a job loss of 21 million people, as marking the bottom for terrible economic news,” wrote Bryce Doty, a senior portfolio manager at Sit Fixed Income Advisors. “So, ironically, we are becoming more optimistic about the future.”

“The stock market is certainly pricing in the beginning of a downtrend in new virus cases for the U.S. as a whole,” wrote Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

Still, some analysts note that the US stock market has become expensive.

“While we are encouraged by the stabilization of new COVID-19 cases and the massive stimulus put in place, stock market valuations are no longer as attractive,” wrote Jeff Buchbinder, equity strategist at LPL Financial, in a Wednesday research note.

Also, an economic recovery may not allow corporate earnings to recover as much as some think.

“While it’s possible that 2020 forecasts have been cut enough, we are concerned that 2021 numbers now need to be cut more aggressively,” wrote Lori Calvanasi, head of US equity strategy at RBC Capital Markets, in a Wednesday note. “We have serious doubts about whether S&P 500 profitability will be able to surpass pre-coronavirus crisis levels in 2021.”