Report: Economy To Contract 3% To 5% The Rest Of 2020

Investors face a challenging environment that may lead to more volatility, fundamentals remain critical to making effective investment decisions, a new LPL Financial report finds.

Midyear Outlook 2020 provides updated views of current fundamentals, while discussing three primary pillars, or trail markers, for investing – the economy, stocks, and bonds. Key insights and forecasts discussed in the Midyear Outlook 2020 report include:

• Economy: Expected GDP contraction of 3 to 5 percent. The trajectory of the economic recovery remains uncertain, but based on the depth of the contraction and a multi-staged recovery, LPL Financial Research strategists’ 2020 base-case forecast calls for a 3 to 5 percent contraction in gross domestic product.

• Bonds: Historically low yields potentially ahead. LPL Financial Research strategists believe the direction of interest rates may be higher over the rest of 2020. LPL Financial Research’s year-end base case forecast for the 10-year Treasury yield is 1 to 1.5 percent, which would be the lowest year-end level on record if realized.

• Stocks: Upside potential limited through year-end: LPL Financial Research strategists believe the optimistic economic recovery scenario reflected in stocks may limit their upside potential over the rest of the year. The 2020 year-end S&P 500 Index target range is 3,250 to 3,300, based on a price-to-earnings ratio (PE) of just below 20 and a normalized earnings per share (EPS) number of $165.

LPL Financial Managing Director and Chief Investment Officer Burt White said, “Although the economy appears to be bouncing back quickly now, the truth is it might take a long time to get back to the level of output we saw in early 2020. The final part of the economy’s comeback, like building a house, may take longer than we expect.”

“The rest of the year will continue to be challenging, with significant uncertainty that may lead to more volatility for the next few months,” said LPL Financial Senior Vice President and Chief Market Strategist Ryan Detrick. “LPL Research is looking ahead for new ways to face these challenges and prepare for better times. We continue to encourage investors to focus on the fundamental drivers of investment returns and their long-term financial goals."