Investors Are Way Too Optimistic About An Economic Rebound, According To This Market Expert

TOPLINE

Despite a minor sell-off on Friday, stocks have rebounded from the coronavirus recession strongly in recent months—too strongly, according to research from Vital Knowledge founder Adam Crisafulli, who believes investors are too optimistic about a quick economic recovery and the market is now overvalued.

KEY FACTS

Crucial quote

“The threshold to spark a wave of buying is miniscule (recycled news, higher analyst price targets, etc.) while the bar to spur selling is extremely high,” Crisafulli said in a recent note.

What to watch for

“While it’s unlikely politicians reimplement lockdown measures, all the negative press around the coronavirus will stunt the economic normalization process,” Crisafulli warns. That will further delay the time it takes for consumer behavior—and therefore economic growth and corporate earnings—to return to pre-crisis levels.

Key background

Over the past few months, stocks have largely continued to rally on optimism about reopening the economy. But more recently, the market is now taking a sizable hit amid rising concerns over a resurgence of coronavirus, with many U.S. states reopening now seeing a spike in new cases. Expectations for a quick economic recovery are dwindling: On June 10, the Federal Reserve provided a grim update on the economy. The Central Bank forecasted unemployment will remain high for years and said interest rates will stay near zero until at least 2022.

Further reading

S&P 500 Turns Positive Despite Worse-Than-Expected Jobless Claims (Forbes)

Dow Jumps 500 Points After Record Surge In Retail Sales (Forbes)

Stocks End Worst Week Since March Despite Dow Rallying Almost 500 Points (Forbes)

Federal Reserve Will Keep Interest Rates Near Zero Until 2022 (Forbes)

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