- On the heels of their fastest-ever plunge into a bear market, U.S. stocks have recovered nearly half of their earlier losses. Sentiment has rapidly turned optimistic as investors focus on the prospects of a gradual economic reopening combined with continued monetary and fiscal support leading to what they hope will be a V-shaped recovery.
- The S&P 500 is now up approximately 26% since bottoming on March 23.
- As sentiment and activity within the equity markets has turned decidedly more optimistic, however, other major asset classes, including those often viewed as economic bellwethers, paint a less confident picture.
- The chart compares the performance of the S&P 500 over the past year with changes in the 10-year Treasury yield and crude oil prices. All three markets experienced similar slides beginning in late February. While the S&P has since moved out of bear market territory, oil prices and Treasury yields have continued to slide, flashing caution signs about the prospects for a rapid economic recovery.
- Markets are forward-looking and equity investors could be proven correct if economic indicators begin to bounce back in the coming months. Even under a best-case scenario, however, the U.S. economy appears to be headed for a contraction year. Against this backdrop, investors may be wise to prepare for the possibility that the eventual economic recovery will be choppier and slower than recent stock market activity may suggest.1
1 Federal Reserve Bank of St. Louis, as of April 23, 2020.
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