The markets struggled last week as the challenges and uncertainties of reopening the global economy stole the headlines. Given the amount of both monetary and fiscal stimulus that has been injected into the economy, markets will likely be very sensitive to news on two topics. The first is how the reopening of the U.S. economy is going, along with any potential setbacks. Consensus opinion seems to forecast a choppy reopening with more normalcy in the fourth quarter. The second topic is progress toward a vaccine or effective treatment for the coronavirus. The latter is essential to seeing a true return to normal behaviors in a shorter time frame. Ultimately, reopening the economy and progress related to a vaccine or treatment are intertwined factors that may lead to big market moves in either direction.
Risk markets have already priced in a significant amount of good news regarding the future path of the economy, but could still post large gains on any positive and sustainable news given the amount of liquidity in the system. The last week has seen oil prices rebound significantly to over $30/barrel as supply cuts have occurred quicker than anticipated. If demand snaps back over the next few months, expect oil prices to continue to rise.
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