In March, less than a month after reaching all-time highs, the US stock market reached bear market territory following the lockdown response to COVID-19. The world quickly followed into a broad-based drop-off in all equity markets. Volatility and uncertainty remain high, but the markets have seen a slow recovery since April. Due to the uncertainty as the economy begins to open back up, it is still too soon to suggest when a full recovery will occur. However, models do predict that it will remain gradual.
- Although fiscal and monetary policy seem to have tempered much of the short-term harm in the markets, the US economy is in a recession.
- Corporate profits are expected to continue to take large hits due to the lower levels of supply and demand.
- Most progress has been seen from China, due to its reopening of the economy. Despite the progress, China’s economic activity remains significantly lower than the levels pre-COVID.
- After witnessing China’s experience in reopening the economy, it’s possible that the outlook for other countries looks similar as they begin to reopen. It is expected to be slow, hesitant, and inconsistent.
- The recession phase often provides long-term investment opportunities for investors.
The below diagram illustrations a hypothetical illustration of a business cycle. This cycle illustrates repeated fluctuations in the economy over years. The cycle is only one tool to use when considering portfolio allocations and positioning.
*Source: Fidelity Investments (Asset Allocation Research Team – April 30, 2020)