An uneven economic re-opening will likely prompt more volatility and cautious optimism is warranted, argues Robert C. Doll, chief equity strategist at Nuveen.
Infection rates continue to rise in some areas of the world, but there is a sense that the worst of the storm has passed. Hot spots such as Italy and New York are showing better data, and broad trends indicate that aggressive counter-measures have effectively limited coronavirus contagion.
Most of the world is now moving to a new and highly uncertain phase of economic reopening. The biggest risk, of course, is that without widespread and repeated testing, let alone effective treatments and vaccines, we could see renewed surges of infections as economic lockdowns start to ease. And even if we are largely able to avoid fresh coronavirus waves, reopening economies will be uneven and uncertain, making it difficult to gauge the outlook for global economic growth into 2021 and beyond. But it is safe to say that the economy will be operating well below pre-crisis levels for some time, which will negatively affect earnings, profits and many financial asset values.
The good news is that the aggressive and unprecedented fiscal and monetary policy response has been a clear positive for equities and other risk assets. Although economic growth is in the midst of a widespread collapse, we think stimulus measures will help set the stage for the start of a recovery later this year.
Since the start of the current crisis, we have argued that containing the spread of the coronavirus will be the first and most critical condition necessary for improvement in the economic outlook and sustained upside in risk asset values. We may soon find out how well those steps have been working. Over the near term, market volatility is likely to remain high in both directions, making portfolio positioning a challenge. As we have been saying for some time, we think investors with long-term time horizons may want to consider using periods of near-term weakness as buying opportunities.
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