Stocks traded at record highs in February, but collapsed into a bear market at record speed as the pandemic intensified.
Now, the Federal Reserve has pledged trillions of dollars in monetary stimulus and backstops to cushion the economy and keep financial markets functioning, while governments have responded with relief efforts. The scope of the response has been credited with allowing stocks to bounce back sharply off their March 23rd lows.
“The S&P 500 leads economic recovery because excess liquidity provided during a recession first flows into financial assets before being absorbed by the real economy; note also that in this cycle policymakers seek to keep global liquidity in U.S. dollar terms growing,” Stifel said in a release, referring to measures by the Fed and global central banks to meet a world-wide surge in demand for the U.S. currency (see chart below).
Money Supply
Note: Seasonality also plays a role in the forecast, with stocks appearing to enjoy something of the usual tailwind that has seen stocks outperform significantly in the November to April time frame relative to the rest of the year.