April ended on a downbeat note for equities, but double digits gains for the month helped calm investors even while COVID was surging in North America. With many regions gradually re-opening, the global economy is starting a long grind back from the COVID abyss. We expect first and second quarter GDP growth to confirm a deep recession, and while third quarter growth should show a strong rebound, it won’t be enough to make this a V-shaped economic recovery. The level of economic activity might not return to its pre-COVID level before the end of 2021. Meanwhile, equities posted a surprising V-shaped rebound. Resilient, long-term focused investors have been helped by “whatever-it-takes” monetary and fiscal policies, as well evidence that the COVID pandemic is getting under control.
It’s increasingly clear that social-distancing measures will stay at least for the summer, if not longer, unless a vaccine is found or the virus fades away. But as we’ve seen in previous crises, society is adapting to the changing environment and resilience is building up. Policy makers have shown no hesitation in their response to fight the COVID-induced economic calamity. With an “all-in” U.S. Federal Reserve (Fed) Chair, Jerome Powell, the “Fed is committed to using full range of tools forcefully, aggressively and proactively, as long as necessary” (Source: Reuters). These actions and unambiguous willingness to act make it hard to have a bearish mid-term (6 to 12 month) outlook on stocks while recognizing that near-term volatility will persist.