Waiting For The New Normal To Arrive

We got off to such a roaring start!

2020’s first quarter race out of the gate amid economic growth, broad optimism, and low unemployment.

The quarter ended on March 31 as a historic laggard having set records that few could have foreseen.

“The Dow Jones Industrial Average and the S&P 500 finished their worst quarter ever, down 23% and 20%, respectively,” said Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.

Now, BofA suggests that a full recovery could be more than a year away in late 2021.

These factors led to that dire conclusion:

  • The virus continues to spread.
  • Nearly 10 million Americans have filed jobless claims between last March and April 3.
  • April, and possibly May. Could find the financial markets and economy poised for some of the sharpest downturns in history as the shutdown takes full effect.

But there is one thought to hold on to.

This is a health-care crisis; before it began, the fundamentals of our economy were strong.

But, right now, Washington is treating it like a financial crisis and not a natural disaster.

As a result, U.S. GDP is likely to shrink by 30% during the second quarter on an annualized basis.

BofA’s most dire forecast sees the GDP contracting by a cumulative 10.4% over the first nine months. It would then then recover somewhat in the fourth quarter to finish full-year 2020 with GDP growth of -6%.

In other words, the steepest recession on record and nearly five times more severe than the average of all recessions since World War II.


But what about investing?

There is an arduous economic recovery ahead. But, no matter what some in Washington believe, the economy and the stock market are totally different animals.

So first, said Savita Subramanian, expect companies to work out their bad news during 2020. Subramanian is head of U.S. Equity & Quantitative Strategy and Global ESG Research for BofA Global Research

But she also predicts that while earnings aren’t likely to return to pre-coronavirus levels until 2022, “we’re anticipating earnings growth in the range of 25% to 35% for 2021. That’s a pretty strong recovery.”

But right now, as the economy and markets begin to bottom out, investors who avoid panic selling may find opportunities to rebalance their portfolios and invest towards an eventual recovery, said BofA’s CIO Hyzy.

Still, everything depends on answer to the question the whole world is asking: When will the health crisis ease? And the answer is this:

There is no timetable, but it will be science that gets us back to a new normal.