Despite civil unrest both domestically and abroad, stocks staged another impressive rally to kick off the month of June as most major world market indices traded between 3-4% higher mid-week. The rally extended to the credit markets as well with both high-yield corporate and municipal bonds clawing back some positive price return. After bottoming out in late March, the S&P 500 has now rallied nearly 40% off those lows and currently sits less than 10% away from all-time highs. Though the economy is starting to show signs of recovery from the coronavirus-induced recession, it is hard to put a finger on exactly what has been the catalyst behind the markets rebounding as quickly and substantially as they have. Concurrent actions taken from both a monetary and fiscal policy standpoint by nations around the world are certainly primary drivers. Monetary policy created ample liquidity in the markets while fiscal policy helped bridge the income gap for many workers who found themselves out of work during this pandemic. Still, the global economy has a long road ahead to return to pre-pandemic levels of productivity, employment, and corporate profits. Unemployment is expected to come in around 19.8% for the U.S. in May, with nearly 8 million jobs lost. Estimates for 2020 earnings vary drastically, however, the general consensus is for corporate earnings to fall by nearly 25% year over year. Given this extremely weak backdrop, it is hard to imagine that markets around the world have recovered as much as they have. This helps shine a light on the difficulty associated with trying to predict short-term movements in the market while highlighting the importance of maintaining a disciplined long-term approach to investing.
Source: Bloomberg, FactSet, WSJ Market Data, GSAM