• Stock prices have been climbing sharply over the past few weeks with improving investor sentiment.
• However, economic data is looking terrible, and we are only starting to see to what extent.
• Volatility is likely to remain elevated, and we wouldn’t be surprised to see a near-term market pullback. But we think stocks have reached their low for this bear market.

Signs that the coronavirus pandemic is flattening in some regions have given rise to hopes that select areas of the economy could start to reopen. More than anything, the massive fiscal and monetary stimulus has caused equity markets to charge higher in recent weeks. Yet, economic data is likely to continue being terrible, as will corporate earnings results. Until we see clearer evidence that economic growth is likely to improve in 2021 and beyond, we think sharp levels of volatility will persist.​

Ten Observations And Themes
1. The scope of this pandemic is horrific. One measure: Coronavirus has now killed more Americans than the Pearl Harbor attack, the 9/11 attacks and the Iraq and Afghanistan wars combined.
2. Unemployment levels are skyrocketing. Over the last four weeks, the number of jobs lost has exceeded the total number of new jobs gained since the end of the Great Recession.1 The weekly trend of unemployment claims translates into an unemployment rate that is probably in the high teens, and we expect it will rise to between 20% to 25%.1
3. Economic data is historically bad. Retail sales fell 8.7% in March, the worst results since the government started tracking the data in 1992.2 And we think results could be even worse in April.
4. Oil prices are likely to remain under pressure. Although OPEC and other oil producers agreed to massive production cuts, supply is still not low enough to match collapsing demand.
5. The Federal Reserve and other policymakers are in a “whatever it takes” mode. Fed Chair Powell said it plainly a couple of weeks ago: “We will continue to use these powers forcefully, proactively and aggressively, until we’re confident that we are solidly on the road to recovery.” His further comments that the Fed and others should “make [Americans] whole” is a clear indication that policy will remain supportive.
6. Inflation should remain low for now, but could be a long-term issue. With interest rates near zero and economic activity halted, we don’t expect inflation to rise over the next year or so. But as economic activity recovers, the massive debt and deficit will put upward pressure on inflation and bond yields. This will likely be a negative for Treasuries and the dollar and a tailwind for gold.
7. Investors are hoping for earnings improvements in later 2020 and into 2021. Results for the first quarter are looking bad, and second quarter results are likely to be horrible. Investors are already looking past these time periods and hoping for a recovery in the second half of 2020.
8. A near-term market pullback could be likely: Stocks are going to be caught between massive policy support and a significant decline in economic activity. We think Fed action and fiscal stimulus should keep sentiment from collapsing to the levels we saw in mid-March. But we also think stocks could be due for a pullback given prices have now risen over 30% since their low on March 23.3
9. We think the current recession will be uniquely deep but also uniquely short-lived. The recovery is likely to be uneven, as each stage of economic reopening must balance both public health and economic considerations. This will likely be a messy and gradual process that lasts for months. But since the recession is not based on structural problems, we think the recovery, when it happens, will be on firm footing.
10. The factors we are watching to determine an economic bottom are trending in a better direction. Coronavirus data is looking less bad in areas, credit spreads are narrowing, the yield curve is stable and copper prices are improving somewhat. On the negative side, weekly jobless claims are still historically high.

Some Clarity Is Emerging, But Investors Should Still Expect Rough Times Ahead
The coronavirus pandemic appears to be moving to a new phase where trends in new cases and recoveries are playing out in waves depending on when the virus took hold. The next step will be the debate over how and when to start reopening economies. Without a vaccine or successful treatment, it seems nearly impossible to return to something resembling normal. Yet, after a sudden halt in economic activity, a gradual restart in selected areas would boost economic and financial market sentiment.

We expect that the global recession will end during the second quarter. Economic activity in May and June should be stronger than April, but still terrible. Any sort of uptick would represent more visibility as to the depth of the downturn. Along with a flattening of infection rates, signs of economic improvement would improve sentiment.

From an investment perspective, we think the recent market low of 2,192 for the S&P 500 on March 23 will hold, but investors should prepare themselves for further bumps and additional downturns.3 Until we collectively have confidence that economic prospects for 2021 and beyond are improving, we expect volatility to remain high in both directions. In the near term, we also think markets may be due for a pullback given the strong rise in prices over the past few weeks and an upcoming slew of horrific economic and earnings data.

Robert C. Doll is senior portfolio manager and chief equity strategist at Nuveen.

1 Source: Department of Labor
2 Source: Commerce Department
3 Source: Bloomberg, Morningstar and FactSet