The crisis roadmap is our framework for analysing the progress of the global political, economic and market response to the COVID-19 crisis. Our two previous updates (After the false dawn and Miracle cures) marked-to-market the gradual emergence from the crisis in the US and the rest of the world as confirmed case growth has slowed and lockdowns have been eased.
There are reasons to be optimistic about the recovery: correlations are normalizing (Chart 1), economic data have been surprising positively (Chart 2) and earnings revisions are improving (Chart 3) – all factors we reckoned were necessary before markets could sustainably recover. Fiscal support is powerful (Chart 4, but we hope fiscal policymakers realize they still have plenty of work to do) and the Federal Reserve is extending support directly to the Main Street economy - again something we thought very likely as part of the fiscal and monetary response (Chart 5).
But not all news is good news. The stock market crash we feared has not happened, and the policymaker “put” means new lows are unlikely in the near term. But with evidence of a second wave in the US after the Memorial Day holiday (Chart 7) and some EM countries still in the early stages of their crises (Chart 8), progress is distinctly non-linear. And besides, we expect US earnings to fall 30%: there could still be downside to current -20% expectations (Chart 4). The S&P 500 is already nearly 10% off its high from last week. COVID-19 crisis risk is far from over.