Take a gander at a chart of the S&P 500 Index and it sure looks like traders expect the coronavirus crisis to end quickly and the economy to roar back. One might think that the only thing to wait for is an all-clear signal — a cue that marks the conclusion to the Covid-19 calamity and the return of the boom times.
But it isn’t likely to work that way, according to comments that company officials have made on recent earnings calls. Executives bold enough to give any guidance whatsoever have been far more likely to predict a long slog ahead than the V-shaped recovery so many stock buyers are betting on, according to research by RBC Capital Markets.
“Their commentary suggests investors need to prepare for a long, slow and uneven recovery,” Lori Calvasina, the head of U.S. equity strategy at RBC, wrote in a report this week. “That isn’t currently priced into the stock market.”
After studying corporate results and commentary from the first half of the earnings season, Calvasina’s team says analyst forecasts for earnings growth are still too optimistic. More downward revisions are in store, and that could create choppy trading conditions in equities markets going forward, according to RBC.
The reason for the pessimism should be obvious as people across the U.S. hunker down at home in an effort to avoid a vicious virus that’s already produced more than 1.2 million confirmed infections and 75,000 deaths. A growing consensus of public-health officials predict it will be at least 18 months until there’s a vaccine. Before one arrives, there isn’t much chance we’ll bring back the status quo.