- Expect a bumpy path for U.S. markets in 2020 as the economy comes back online, followed by a more solid recovery in 2021
- Recoveries have been longer and stronger than downturns
- A great divide between winners and losers makes it a stock-picker’s market
- It’s better to stay invested than sit on the sidelines
The decade-long economic expansion did not end with a whimper. The coronavirus brought it to a screeching halt.
U.S. gross domestic product (GDP) fell 5% in the first quarter, and a steeper decline is likely in the second. Consumer spending, which accounts for about two-thirds of the U.S. economy, slid 13.6% in April, the steepest decline on record.
More bad news lies ahead in the short term, starting with the tragic human cost. Historic unemployment will likely have a lasting impact on the economy, and many businesses are failing. The path to economic recovery will depend on the course of the virus and public health response, and stock markets may bounce around for an extended period until the economy finds firmer footing.
“The U.S. stock market appears to be priced for a quick economic recovery,” says U.S. economist Jared Franz. “But I expect a more gradual U-shaped recovery with bumps along the way,” he explains.
When will near-term pain give way to long-term gain? “Over the next six months, we will see some challenges, and I expect consumer demand to remain sluggish for some time,” says equity portfolio manager Claudia Huntington.
“That said, my three-year view is very optimistic. I am seeing a lot of long-term investment opportunities present themselves in this environment.”