There are some promising economic signs for the second half of this year, but too many questions remain unanswered ranging from what will happen with the rate of COVID-19 cases and results of the upcoming U.S. election, according to market experts from three Legg Mason investment divisions who spoke Thursday during the webinar “Anatomy of a Recession.”
“The next couple of months are going to be choppy — especially with the election coming up in November,” Jeffrey Schulze, an investment strategist at ClearBridge, said.
Margaret Vitrano, a portfolio manager at ClearBridge, predicted further into the future, telling viewers: “I do think the second half of this year is going to be choppy.”
For Schulze, one big question for now is: “What happens when the unstoppable force meets an immovable object?” The unstoppable force in this case is the “tenacious determination” of policymakers — specifically the Federal Reserve and Congress — and the immovable object is the U.S. economy, he said.
The economy right now is “extraordinarily fragile and facing several headwinds” that include rising COVID-19 infections and bankruptcies, as well as a “hesitant consumer,” he said.
We experienced a “very quick recession” that ended in May or June, he noted. “Policymakers were able to short-circuit” the normal “recessionary process” seen in past economic downturns. The fact that this recession was caused by a virus made it easier than in the past to agree on a stimulus plan early on, he said.
Continued COVID-19 Concerns
“We think that there’s a lot more upside for equities” now, he said. However, key questions include how big the first pullback will be and when it will happen, he noted.
He predicted the size of the first pullback will be determined by the “shape of the recovery,” which will “be dictated by the wave of infections that you’re seeing across the Sun Belt.”
Because of that recent surge in infections, it appears the coronavirus is not seasonal as many other viruses are, said Tim Wang, head of investment research at Legg Mason real estate investment division Clarion Partners. This “unexpected” second wave we are seeing “may actually slow down the reopening of the national economy” and “change the shape of the recovery from the initial V shape to more like a U shape,” he projected.
What seem to be positives, however, are that the death rate does not seem to be growing significantly with the increased rate of infections, suggesting the most at-risk people are avoiding infection, while consumers and businesses are likely getting better at safety initiatives, Wang said. Unless hospitals become overwhelmed, he predicted it is unlikely we will see more statewide lockdowns like we saw in March and April.