Despite improving economic data and unprecedented amounts of monetary and fiscal stimulus, our view remains cautious toward economic growth and equity markets. Many countries and states within the U.S. are moving quickly to reopen their economies despite continued risk of secondary surges of coronavirus. We expect economic reopening to be bumpy, which could cause some setbacks. However, if we do not see a notable uptick in new cases over the coming months, economic growth could improve faster than we expect and risk assets could avoid another downturn, especially as policymakers around the world are fully in pro-growth mode.
At this point, investors have turned optimistic toward prospects for the economy and are banking on ongoing stimulus. This confidence has allowed stock prices to move higher and recover well more than half of the losses suffered in February and March. In our view, investors may be overly optimistic. The economic outlook remains uncertain and corporate earnings will struggle to fully recover. We think stocks could still enjoy some upside potential if and when the economic outlook becomes clearer, but modest economic growth and a likely uptick in long-term inflation after 2021 present a challenging backdrop for both stocks and bonds.
Robert C. Doll is senior portfolio manager and chief equity strategist at Nuveen.
1 Source: Bloomberg, Morningstar and FactSet
2 Source: Department of Labor