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Why a ‘V-Shaped’ Recovery Is Unlikely, According to a Market Strategist

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Lingering concerns by many Americans over the coronavirus will likely result in a “lag” in the economic recovery, which stands to be more of a “U-shaped” one than the “V-shaped” recovery that some are expecting, according to Ryan Nauman, market strategist at Informa Financial Intelligence.

“A lot of folks out there are expecting a ‘V-shaped’ recovery,” including the International Monetary Fund, once the economy is reopened, he said Tuesday during the webinar “Riding the Black Swan to a COVID-19 Recovery.”

That optimism is based on “the assumption that people will resume spending and traveling like prior to the crisis, without much concern,” he said.

“I do believe people are itching to get out and travel and spend, especially after being cooped up for so long,” he conceded. Some consumers will also “have fatter savings accounts due to the limited places they can spend money right now,” he noted. Based on that, Nauman said he could see why some people believe we will have a V-shaped recovery.

“However, I’m uncertain that everyone is going to rush out the moment that the all-clear signal is given,” he said, adding: “I think it will be a lag as I think some people will remain cautious and might wait until a vaccine is available before jumping on an airplane or spending money on entertainment” such as attending a concert.

Nauman questioned whether a market rally is sustainable considering all the “uncertainty” that continues to exist around COVID-19.

The duration and depth of this year’s recession, meanwhile, is a major concern, he said earlier in the webinar, also noting that the 22 million jobless claims over the past four weeks wiped away the 22 million jobs that had been created since the financial crisis of 2007-2008.The fact that the price of oil is well below its long-term average could have negative effects on the economy, he also said. Another reason for concern: increased risk of inflation as a result of the huge U.S. stimulus packages, he said.

If there is a V-shaped recovery, that “provides opportunities,” he conceded. Meanwhile, some “investors are discounting the historically poor economic data, uncertainty on how bad and how long the recession will be, very bad corporate earnings which are going to continue during the first half of this year, and the overall uncertainty around the deadly virus,” he said. The “slowing pace” of new COVID-19 cases in at least certain places is also creating “some optimism” among investors, along with “very aggressive” moves by the Federal Reserve to help the economy, he noted. These investors are “discounting all this information that’s out there right now, and they’re focusing more on the other side of the crisis and the future, and what opportunities might exist when we get through the curve,” he pointed out.

However, Nauman was quick to add: “With all the being said, I believe markets are ahead of themselves and discounting the poor fundamentals too much. Unless we get better than expected economic data, some promising news on economic growth, or a vaccine sooner rather than later, I just don’t believe this dislocation is sustainable moving forward. I believe it’s still a time to remain cautious, maintain discipline and focus on quality, while taking opportunities that might correspond to your individual investment objectives.”

— By Ryan Nauman on ThinkAdvisor: