CIM Q2 2020 Outlook03/19/2020

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Bear Market Returns After a Decade of Hibernation

As the new decade got underway, economic indicators were turning mostly positive. While surveys of business leaders in the service sector and especially the manufacturing sector were weaker, there were enough signals to push our Recession Riskometer to “low recession risk.”

The housing sector, which had been muted during most of this economic expansion, was finally turning around. Building permits were on the rise and unemployment remained extremely low, which helped to push consumer sentiment to high levels. While economic data was heating up, from a historical perspective, equity valuations were high and bond yields were low. In other words, the good economic news appeared to be priced into stock markets, yet bond investors were cautious. So, the year started with stocks, bonds, and even gold rallying at the same time. Momentum was strong and nothing could seem to stop it, not even the reports out of China about a new coronavirus, later named COVID-19.

At-a-Glance

  • Many world economies were in slow growth mode before COVID-19. Slow growth is close to no growth, and the virus will likely push some economies into recession.
  • Stock valuations started the year at elevated levels and upward momentum carried stocks even higher as earnings were relatively muted. From high valuations, equities had more room to fall as investors try to understand the impact COVID-19 will have on earnings.
  • Bond yields were low at the start of the year, but fears of economic slowdown drove yields down even further to record lows.
  • Investors are still digesting news around the virus and oil price war. Volatility will remain elevated as uncertainty remains. We will be watching the Chinese recovery closely and assessing the possible duration of the virus in the rest of the world.
  • Risks have increased in both bond and equity markets. Diversification is more important than ever. Markets can rebound as quickly as they drop. Focusing on long-term investment objectives is imperative.
Latest - InsightsCIM Quarterly Outlook Q2 2020.pdf Latest - Insights

The Market Outlook is published by Cetera Investment Management LLC, an SEC registered adviser owned by Cetera Financial Group. Cetera Investment Management provides market perspectives, portfolio guidance, model management, and other investment advice to its affiliated broker-dealers, dually registered broker-dealers and registered investment advisers.

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