Navigating the Market as the U.S. Economy Recovers

The stock market’s recent behavior has been nothing less than spectacular and one for the record books.

The major indexes have recouped their Covid-19 losses and are now at or close to pre-pandemic levels. The rebound followed the sharpest market downturn in history, in which stocks lost more than a third of their value after peaking on February 19th.

The market rebound that got underway on March 23rd still continues, as economic readings show the U.S. economy steadily coming out of the downturn. But there are those with less optimism due to still-elevated infection levels and the market drifting sideways in recent days.

So where do we go from here as the U.S. economy continues to recover even as parts of the country experience rising infection rates? Let’s examine the landscape of bullish and bearish arguments to help you make up your own mind.

Let's talk about the Bull case first.

1) Looking Past the Downturn: The pandemic dealt the U.S. economy a severe blow whose effects will likely linger for a while.

Markets can see through to the fact that the U.S. economy entered this downturn in the best possible shape, with household and business confidence at near record levels on the back of a multi-decade low unemployment rate, rising wages and record corporate profits.

Irrespective of whether the shape of the recovery resembles a ‘V’ or ‘U’, there is little doubt that pent up demand effectively guarantees a very strong rebound, as recent data about business and consumer spending, housing and other areas already show.

That said, some parts of the economy will likely remain under pressure until we completely see the back of this pandemic.

2) Unprecedented Policy Response: As Congress puts finishing touches to extending the fiscal relief measures, it has to be acknowledged that the fiscal and monetary response has been swift and without parallel in history.

The relief measures have helped replace lost wages for workers, assist small businesses in staying open and stave off solvency issues in industries hit hard by the pandemic.

This ensures that households and businesses will have sufficient liquidity to navigate the downturn and serve as a bridge to the other side of the pandemic.

More . . .

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Zacks Investment Research

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Written By: Zacks Investment Research