Economic Insights - April 2020

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What is the outlook for the economy?  We’ll give you the insights and analysis you need to make better decisions so that you can make better profits.

Greetings to all those who survived the shortest bear market in history!

The S&P 500 registered its all-time high on February 19, before falling 34 percent to hit an intraday low of 18,200 onMarch 23. Notably, that’s one day after a Video Town Hall from our sister-publication Trends said, “the bottom is at hand.” Using the classic bear market definition of 20 percent down from the most recent high, it began March 11 and ended April 8: a total of 29 calendar days.

From here expect the market to follow the economy’s V-shaped recovery back to new highs well before year-end. It’s merely the opposite side of the panic in late February of this year when it became apparent that for the first time in 12 years, this year’s earnings expectations would drop below the previous year’s earnings. That fact and a broader wave of uncertainty ended the record bull run.

At the time the market began to drop, the analyst community was scrambling to come up with new revised S&P 500 EPS estimates for 2020 and 2021. We did not know where the numbers would eventually end up, but it became apparent that 2020 numbers would be lower than 2019 earnings.

The S&P 500 earned $163 per share in 2019, and as we began the year, the consensus was for $176 per share in 2020. As the Trends team explained on March 22, our economy will take a temporary hit through at least June, but the market will recover quite nicely once the coronavirus runs its course. In February and March, nobody knew how long that would be, but I observed that it took about three months for COVID19 to run its course in China, and we were simply looking for a statistical indicator of when the U. S. curve would flatten. Yet, at that point, the individual investors who had sold their index funds were hiding under their beds wearing “hazmat suits.” 

We’ve been proven correct in the short-term.

What are we saying now? Get ready for a V-shaped recovery in the economy.

As always, the market looks three to six months down the road. For that reason, one of the best leading indicators for the economy...

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