Despite Immediate Risks, Stocks Look Good in Long Run

The S&P 500 has raced upward since March, surpassing its pre-COVID February high by nearly 6%. The stock market’s recovery broadly reflects three things:

• Monetary and fiscal authorities rapidly provided aid as a sort of bridge financing to carry the economy through a portion of the pandemic turndown.
• The aid packages largely benefited the biggest companies, both in terms of how consumers and businesses spent their benefits and bolstering the stock market in general.
• The recession was deep but appears to have been short thanks to the government’s quick intervention, which has resulted in a bounce-back in economic fundamentals that has surprised most forecasters.

AMG remains positive about the long-term outlook for stocks. However, the near-term environment presents a number of risks as the bounce off the second-quarter bottom wanes. The next government aid package has become a political football and is in doubt. A failure to provide additional relief to the economy this year could lead to flattening fourth-quarter growth or worse. Simultaneously, uncertainty over the November presidential election is high and rising. This is particularly true if the race is close and leads to a contested election. Markets do not like uncertainty, and a correction during such a scenario should not be surprising.

Still, the likelihood that the U.S. and global economies will continue recovering remains strong, and investors should stay positioned for it. While the S&P 500 raced to an all-time high in August, large segments of the domestic and foreign equity markets remain undervalued. AMG expects these undervalued areas to drive returns over the next year or two.

Please contact us if you would like to discuss your investments and the options going forward.