Fidelity issued a note for clients on June 17, 2020, which outlined a cautious yet largely optimistic view of improvement around the world on economic conditions—and the continued need for risk management in a highly volatile investment environment.
The note stated, in part,
The note also included the following key findings regarding where various economies now stand:
Figure 1 presents where Fidelity sees various major economies in relation to the typical business cycle.
Source: Fidelity Investments (Asset Allocation Research Team), as of May 31, 2020
One positive factor for the U.S. economy has been the relative outperformance of several economic data points recently relative to analysts’ and economists’ expectations. This surge in positive data has undoubtedly played a large role in the U.S. equity market’s rebound, along with unprecedented actions taken by the Federal Reserve and U.S. government.
Barron’s wrote this past weekend,
Tony Dwyer of Canaccord Genuity emphasized the same theme in a recent client update:
Sources: Bloomberg, Canaccord Genuity; data as of June 15, 2020
Dwyer added in another client note,
One major question surrounding this thesis, according to the Barron’s article cited previously, is the outlook for corporate profits. The article noted that many market participants are questioning current market valuations and whether “any forthcoming rise in profit estimates is already baked in.”
David Wilson at Bloomberg issued a chart last week that shows how profit margins for S&P 500 companies have fallen precipitously. He notes,
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