By Callum KeownUpdated March 16, 2020 10:29 am ET / Original March 16, 2020 9:58 am ET
When will stocks reach the low and what will the recovery look like?
Credit Suisse said it needed to see three conditions required for a trough in global stocks:
1. Clear-cut fiscal easing in the U.S. — which happened late on Sunday;
2. A peak in daily infection rates
3. A trough in global purchasing managers indexes, which it said could happen in May.
In the severe acute respiratory syndrome crisis, markets bottomed out a week daily new infections hit a peak, the bank’s research analysts said.
“We expect a V-shaped recovery ultimately and would be buyers of equities on a one-year view; we believe markets will rise 15-20% over the next 12 months.
“Historically when we look at exogenous supply-side shocks, markets tend to rise very rapidly from the trough (SARS, Kobe earthquake, Suez, 1987),” they said.
The analysts, led by Andrew Garthwaite, favored stocks in Asia (a commodity-importing region on top of the virus) relative to Europe. In a new realistic worst-case scenario, U.S. earnings would drop 20% and the S&P 500 would fall to 2,200 points, they added.
They also expected “massive” monetary and fiscal stimulus. “This should enable a V-shaped recovery that by the end of 2021 could make up for much of 2020’s lost growth,” they said.