Signs the crisis has ‘stopped getting worse’


Investors should expect a recession over the next couple of quarters but look for key signs that will show the crisis has stopped getting worse, according to a T. Rowe Price portfolio manager.
David Eiswert, T. Rowe Price Global Focused Growth Strategy Equity portfolio manager, said there were three key “signposts” that were indicators that could signal the emergence of a “stop getting worse” period which was the peak of the crisis.
These signposts were massive and virtually unconstrained fiscal and monetary stimulus, treatment and testing for the virus, and a peaking of infection rates.
“Stocks typically bottom when the economic environment ‘stops getting worse,’ not when economic or earnings data are trending better,” Eiswert said.
“Given this, we need to focus on signs that indicate when it will ‘stop getting worse’ as opposed to ‘focusing on the elimination of all risk until things get better.
“Governments and policymakers have learned the lessons of the global financial crisis; stimulus is necessary to bridge the gap between longer‑term economic value and short‑dated financial obligations.
“Although a vaccine is not likely in the short term, treatments should begin to improve over the coming months, and testing will become more ubiquitous.”
Eiswert said he believed the world would enter a recession in the next one to two quarters.
“The freezing of economic activity is too powerful for the global economy to withstand without a significant impact, but I believe it will be a different kind of recession,” Eiswert said.
“It will involve a fundamental disconnect between longer‑term economic value (the present value of free cashflow) and the acute impact of short‑term financial obligations (rent, interest and principal payments, payrolls, etc).
“This is not a debt crisis, or in any way a normal economic cycle, because of the root cause.”
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