Key Points

  • In our 2020 Global Market Outlook, we cited many indicators pointing to heightened risk of a recession; now we highlight increasing signs of a recovery from one.

  • Investor caution may still be warranted. Stocks have priced in a recovery during the second quarter, leaving the potential for the pace or success of the recovery to disappoint.

  • New cycles usually come with new market leadership. New market leadership by sector, style and geography could emerge in the second half of the year, catching some investors by surprise.

The recession in the first half…

If our tone at the end of last year was gloomy, it wasn’t gloomy enough. In the 2020 Outlook, published last December, we cautioned that the global economy was vulnerable to a recession. Some signs of vulnerability cited included:

  • The ominous fall in the leading indicator for the world economy (OECD Composite Leading Indicator) to 99.1 since “a drop below 99 seems to happen right around the start of a global recession.”
  • The weakness in manufacturing suggested “economies that are most dependent upon manufacturing may be the most vulnerable to a recession.”
  • Business leaders seemed to be bracing for recession since “Most CFOs surveyed in the latest Duke CFO Global Business Outlook poll see a recession starting sometime next year.”
  • The consumer was vulnerable because “a sudden rise in layoffs could undermine the current confidence, now at levels that preceded prior recessions.”

In fact, most major economies were teetering on the edge of a recession before the lockdowns tied to COVID-19 hit. Five of the major Group of Seven (G7) countries ended the fourth quarter of last year with negative or zero GDP growth: Japan (-1.9%), Germany (-0.1%), France (-0.1%), Italy (-0.2%), and the United Kingdom (0.0%). The economic lockdowns in response to the virus magnified these economic vulnerabilities, and led to a deep global recession, as you can see reflected in the chart below. The composite leading indicator has plunged well below 99.

Global economic indicator broke down through important threshold


Source: Charles Schwab, Organization for Economic Co-operation and Development, as of 6/7/2020.