Navigating The Market As We Look Past The Pandemic

Chart, Trading, Courses, Forex, Analysis

The stock market’s recent behavior has been nothing less than spectacular and one for the record books.

The market rebound that got underway in March last year still continues, with all the major indexes at or near record levels. Helping the stock market’s momentum is optimism about the vaccination effort and notable improvement in the economic picture, with the latest economic reading showing the U.S. economy growing at +6.4% in Q1.

But there are those with less optimism about the outlook given the ongoing resurgence in infection levels and slow-moving vaccination effort in many parts of the world that are allowing new strains of the virus to take hold. There are worries about inflation as well, with many in the market fearing a resurgence of pricing pressures in response to expansive fiscal measures forcing the Fed’s hands to tighten policy sooner than currently expected.

The interplay of these competing views will determine how the market in the coming months and quarters. To that end, let’s examine the landscape of bullish and bearish arguments to help you make up your own mind.

Let's talk about the Bull case first. 

An Accelerating Recovery: 

The pandemic dealt the U.S. economy a severe blow whose effects will likely linger for a while, particularly for some parts of the economy. But the markets correctly saw through to the fact that the U.S. economy entered the downturn in the best possible shape, with household and business confidence at near record levels on the back of a multi-decade low unemployment rate, rising wages and record corporate profits.

The recovery got underway with a record rebound in Q3 last year that continued in the last quarter of the year, albeit at a slower pace. While pockets of severe pain still remain, the momentum of the economic can be gauged from the fact that the U.S. GDP is now just a hair below its pre-Covid level.

There is actually a group of economic forecasters that sees current 2021 consensus GDP growth forecasts underestimating the full extent of the rebound in activity levels as the vaccination effort reaches a critical mass this Spring and beyond. This group of forecasters expects growth to be significantly above what is imbedded in consensus projections.

Unprecedented Policy Response

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