In its Q3 2020 Outlook & Review, QMA’s Global Multi-Asset Solutions team writes that despite massive monetary and fiscal stimulus programs, the COVID-19 pandemic and related containment measures have created a global economic contraction of almost depression-level proportions. Even with substantial support from global central banks and governments, economic activity is unlikely to reach pre-pandemic levels for an extended period. While it’s possible that medical breakthroughs might allow the economy to recover lost ground more quickly than GMS foresees, a variety of risks, including a second-wave spike in COVID-19 infections and adverse economic and legislative outcomes stemming from the US presidential election, could delay/derail the long climb back to pre-pandemic levels.
Investors have benefited from a stock market rally as vigorous as the economic contraction is deep. While fiscal and monetary stimulus and ultra-low interest interests support future stock gains, GMS is skeptical of the stock market at current levels. A retest of the market’s March lows seems unlikely, the team notes, but a correction from current levels or consolidation over the next few months seems likely before stocks experience another strong leg higher.