Downside Risk Remains

Stocks fell last week, and many blamed the drop on high stock valuations, Federal Reserve Chairman Jerome Powell’s gloomy outlook, and rising US-China tensions. Perhaps investors also are increasingly skeptical about prospects for a smooth V-shaped recovery. Regardless, stocks may have been due for a pullback after gains in late March through April and could potentially have further to fall.

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Time For A Pause?

Stocks have had a historic run amid increasingly negative headlines. Historically, stocks have tended to lead the economy, and while a second-half rebound may be likely, some equity weakness over the coming months is also possible. The historically worst six months of the year have officially started, and combined with technical warnings, that suggests stocks may take a well-deserved break soon.

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Is The Earnings Bar Low Enough?

This earnings season will be unlike any other, as travel restrictions and lockdowns related to COVID-19 have impacted results dramatically.The biggest economic hits came in mid-March, however, and won’t be fully captured in first quarter results. This makes company guidance particularly important as market participants look for clues into what earnings may look like for the rest of the year.

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A Recession is Here

The economy has halted for the past several weeks, and with it the longest economic expansion ever has ended, meaning we are now in a recession. What makes this recession unique is the government intentionally brought it on, with the chances for an economic bounce back later this year high if the virus is contained. If this recession becomes one of the shortest on record, as we expect, stocks may enjoy better times ahead, as stocks historically have led the economy out of recessions.

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Road To Recovery Playbook Update

Stocks soared last week, working off historically oversold levels. Although the impact to our economy and American workers has been devastating, we did see some positive developments from monetary and fiscal stimulus, which could set up a powerful eventual economic rebound. This week, we share an update on our Road to Recovery Playbook, as we have seen more signs of a major low in equities. We have upgraded our equities recommendation to overweight from market weight where appropriate.

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Key Week For The Bottoming Process

Last week, we revised our economic and market forecasts as the war against the COVID-19 pandemic wages on. We are likely in recession now, though we won’t know that for sure until more timely data is released. What is clear, however, is stocks have priced in a recession. We offer our latest thoughts on the bottoming process and take a deeper dive into our updated economic and market forecasts.

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Road To Recovery Playbook

After recording two double-digit drops in equity prices over the last three trading days, the global pandemic of COVID-19 has sent world equity markets into bear market territory. The result is a cumulative 30% drop in the S&P 500 Index in just under 30 days. Though daunting, once the market finds a bottom, which is where the index begins to consistently move higher than the previous market low—and we believe it is “when” not “if” the market finds a bottom—it may provide an attractive opportunity for long-term investors to consider adding risk to portfolios.

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The Bull Turns 11

As the coronavirus continues to scare global markets, it would be easy forget that the current bull market started 11 years ago today. Based on investing fundamentals, we continue to believe we’ll see a resumption
of economic growth and a continuation of this bull market into at least 2021, but worries are building.

We highlight three reasons this bull market is alive and well, and three reasons it could be on borrowed time.

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Coronavirus Fears Intensify

Stocks just suffered their worst week since the global financial crisis on coronavirus outbreak fears. Last week’s 11.5% drop in the S&P 500 Index brought the index into correction territory. We provide context for the sell‐off and discuss potential U.S. and global economic impacts of the outbreak, although this situation remains fluid, very uncertain, and even a bit scary.

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Corporate America Impresses

Companies have done an admirable job growing profits—considering several stiff headwinds that they’ve faced. Despite slowing global economic growth, weakness in capital investment and manufacturing, a strong U.S. dollar, and a huge drop in energy sector profits, S&P 500 companies impressively ground out betterthan-expected overall earnings growth of 1–2 percentage points during the fourth quarter of 2019. That earnings gain may cement Q3 2019 as the trough, which we think should end talk of another earnings
recession [FIGURE 1].

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