The BIG question and debate of the moment ammong economists and analysts is whether the market is going to make a V shaped recovery or re-visit new lows and make a longer term recovery. We have curated some of the articles -see below - that we believe shed some thoughtful light on these topics.
We have witnessed unprecedented government and federal reserve intervention in the economy and as a result the markets have rallied with an optimism that would have absolutely not been present had this not been the case. The swift financial interventions provide a backstop and floor in the market. The question is: "Where is that floor". That depends on a lot of unknowns and we question whether the analysts and economists who believe the March market bottom is "in" and now behind us have fully accounted for all the unknowns.
Unknowns include:
a) The inability of many CFO's to give guidance going forward
b) Rising unemployment. How many ammong those who have been furloughed or laid off will be re-employed when the economy opens up and how long will it take to get to pre-corona employment levels
c) How will people be able to go to work safely without getting infected. The US has yet to mobilize testing at scale, both for the coronavirus itself and the anti-body test. The FDA opened up approvals for testing in labs around the country only to determine that the quality of the tests were not high enough. This is now back in review. Testing is a critical component for managing the process at the community and business level and getting the economy operative again.
d) How confident will the consumer be - who accounts for 70% of the GDP of the developed worlds economies - in the short-term. We believe they will be more cautious until the coast is "clearer".
e) When will we have an effective anti-viral treatment or/and vaccine on the market? When will the USA have access to widescale testing and anti-body testing?
The IMF and its economists along with other well known institutions are predicting a very challenging economic environment for the global economy.
We believe that the markets and the economy will recover but it will likely take more time to play out than the optimists are projecting. If promising anti-viral treatments emerge out of the clinical trials underway, this will speed up the recovery process. Discovery of effective treatments will be key to accelerating a global recovery. We will keep our eye out on clinical developments for anti-viral treatments.
While we are confident in the long term prospects of the markets and the economy we are less clear about the short-term e.g. how the next 3-9 months will play out. Mobilizing the necessary resources in the "new" environment is taking time. Until the current "unknowns" are less "unknown" markets will have to adjust to the "new new" which we believe is going to be worse than the optimisttic analysts are currently expecting. Any hiccups along the way will build time into the process, be cause for analysts to re-assess earnings and will push the recovery out further.
Why Goldman Sachs Bullish Turn is Bearish for Stocks
Stocks will Revisit their Coronavirus Crash Lows and When to Expect it
Dont be Fooled - The Smart Money is Staying on the Sidelines
Why the Recent Strength of the Stock Market is Ominous for What's Next.