Why I don’t expect a V-shaped recovery

The massive dislocations caused by the coronavirus pandemic are having only a temporary impact on stock markets, which are pricing in a V-shaped income, earnings and economic recovery. But is this optimism warranted? Or will we continue to see businesses negatively impacted for some time to come?

From the February 20 high of 7,162 the ASX 200 is down about 23 per cent. Importantly, however, it is up about 22 per cent from its 23 March lows. In the US, the rally is even more pronounced, having gained 31 per cent from its low point to now being just 13 per cent off its all-time highs.

To better understand whether the rally in share prices is justified, it may be worth examining changes to valuations, what other experts are saying and what is different and similar to past experiences.

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