BENGALURU (Reuters) – This year will be the worst for many world stock markets in nearly a decade at least, although a majority of equity strategists polled by Reuters say top indexes will not revisit lows struck this March following an explosive rally since then.
Macroeconomic data points to a deep global recession, with widespread expectations among economists and longer-term fund managers for a slow and elongated rebound, not to mention warnings from the Federal Reserve as well.
But equity markets, flooded with central bank cash, have rallied over the past two months on expectations of a sharp, vigorous recovery, even as the coronavirus pandemic is still spreading, having infected more than 5.7 million people worldwide.
The May 12-27 Reuters polls of over 250 analysts across Asia, Europe and the Americas, showed predictions broadly focused on economies and businesses swiftly reopening from lockdown, with 11 of the 17 indexes expected to rise from here by end-year.
Nearly 70% of respondents, 76 of 111, who answered an additional question said the 2020 lows would not be re-tested.
That is despite several risks still in play, including: a second wave of the virus; uncertainty on when or if ever company earnings will fully recover; smoldering U.S.-China tensions; and the upcoming U.S. presidential election.
That disconnect between what equity markets are pricing in and economic prospects is coming under closer scrutiny.
“I keep repeating that some markets are not properly reflecting reality and that the power of markets is not in their elevated heights but in their honest price discovery,” noted Michael Every, global strategist at Rabobank.
“They are supposed to be the little boy pointing out that the emperor has no clothes. If they don’t do that, they aren’t good for much,” he wrote.