The economy versus the stock market

The recovery in the US stock market has coincided with the deepest economic contraction since the Great Depression. Will stocks continue on their current path or adjust to the economic reality?

A repeat of 1987?

The 1987 experience suggests that financial market volatility alone will probably not result in an imminent recession for the U.S. economy.

Outlook

Exaggerated U.S. recession fears?

We are skeptical of the signal from the yield curve now given the likely distortion from non-U.S. as well as U.S. QE and negative bond yields in much of the world.

Mid-Cycle Adjustment?

The case for rate cuts is much weaker now than in previous mid-cycle Fed easings.