COVID-19 and Q3: Where Do Markets Stand?
Vaughan Nelson PM Chris Wallis on the state of the economic recovery and how markets could be affected by the pandemic in the near term
- Fiscal and monetary support helped spur a V-shaped recovery from the initial crisis period that has leveled-off somewhat after the exhaustion of pent-up demand during the initial re-opening. The industrial side is more likely to cycle into a relatively strong “self-reinforcing recovery” as inventories are drawn down and replaced. A self-reinforcing recovery on the services side is less clear; the sector was hit much harder by the lockdown and factors like consumer sentiment and further government aid are likely to influence how it fares in the near term.
- Rising case counts in the southern and southwestern United States are not a “second wave” but a continuation of the pandemic’s first wave. Markets have likely priced-in what can be referred to as “the first order of facts” related to COVID-19 and are therefore unlikely to be too surprised by any necessary increase in lockdown activity. Many essential businesses remain up and running. A clearer picture of the post-lockdown “second order of facts” related to the disease will likely appear in the third quarter and beyond.
- An acceleration of cases could well occur through August, affecting the rate and trajectory of the recovery, but market reaction is not anticipated to be severe, particularly in light of continued fiscal and monetary stimulus.
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