9. Political history suggests a tough road for Donald Trump. William McKinley was reelected in 1900 during the tail end of a recession. Since that time, the 10 presidents who have been reelected did not see a recession in the last two years of their first term. The five who did were not reelected.

10. Stocks are caught between two strongly competing forces. On one side is the $5 trillion worth of monetary policy and the $3 trillion worth of fiscal stimulus. On the other is a massive collapse in economic growth and corporate earnings. The policy stimulus is winning so far, but we expect the other side to win a battle or two before all of this is over.

Stock Prices Are More Likely To Fall In The Near Term And Rise Over The Long Term
Investor sentiment has improved since the end of March, thanks to massive monetary and fiscal policy stimulus. Stocks have now recouped more than half of the losses suffered between the February 19 high and March 23 low.1 At this point, we think further gains in stock prices will depend on whether global economic activity can restart sufficiently, which would boost the odds of better corporate profits in the coming quarters.

Absent an unexpected breakthrough in coronavirus treatment, however, we don’t expect economic activity to restart consistently. Rather, we anticipate a combination of confusion and false starts, as well as periods of relief and disappointment. If the economy can get on track more quickly, that would obviously be a positive for stocks. Conversely, the main downside risk is if the economy reopens too quickly and triggers fresh waves of infections and panic. We are also growing concerned about the stalling in the narrowing of credit spreads. If policymakers cannot keep credit markets functioning, that could also trigger a broader risk-off move.

Looking ahead, we think the next few months will be bumpy, as the economic data turn more grim and reopening plans lack clarity. Despite open-ended fiscal and monetary support, we expect more downside than upside action in stock prices in the weeks ahead. At the same time, though, we think the low of 2,192 for the S&P 500 on March 23 will remain the low for this bear market.1 That suggests buying opportunities for investors with long-term time horizons who can handle near-term risks.

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

1 Source: Bloomberg, Morningstar and FactSet
2 Source: Department of Labor
3 Source: Credit Suisse Research

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