The road map has changed a lot since our last investing outlook, in the January issue. As we hunkered down at home, COVID-19 brought the financial markets and our economy to a crashing halt. The longest bull market in history came to an end, and a bear market emerged in record time, with companies’ prospects for the future largely determined by the impact of the coronavirus and their financial wherewithal to withstand it. // What may have surprised most was how resilient the market has been, given the grave economic situation. By mid May, more than 38 million people had lost their jobs. April retail sales and industrial production recorded the steepest monthly drops on record. Restaurants, retailers and movie theaters have filed for bankruptcy, and dozens of companies have suspended or cut their dividends as they husband resources in an attempt to survive (For more on dividends, see the story on page 24.) Oil prices collapsed on fears that global demand would stagnate before recovering some. “We’re looking at an extremely deep recession, deeper than 2008 to 2009, the worst since the Great Depression,” says IHS Markit chief economist Nariman Behravesh. “No question, this downturn is horrific.”
But the stock market reminded investors that it always looks ahead— in this case, beyond the economic chasm to a post-COVID recovery. After falling 34% from its February peak through March 23, Standard & Poor’s 500-stock index pivoted to an unprecedented 30%-plus rebound. But some market experts worry that the rally has gotten ahead of itself. Investors, understandably, are wondering if the second half of 2020 will be off to the races or back to the depths. We think the U.S. market will tread a middle ground between the two.
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