$1.5 Trillion Bank Fears Brutal ‘L-Shaped’ Recovery – And Another S&P 500 Nosedive

  • Barclays has downgraded its year-end price target for the S&P 500 Index by a whopping 16%.
  • The bank isn’t discounting the possibility of an ‘L-shaped’ recovery as opposed to the ‘V-shaped’ rebound many economists are forecasting.
  • Dr. Anthony Fauci says the U.S. should see the “beginning of a turnaround soon,” but don’t expect economic activity to return to normal.

The Dow and broader U.S. stock market were in rally mode on Wednesday, extending a swift rebound on hopes that the worst of the coronavirus crisis had passed. But Barclays says there’s more pain ahead for the stock market as the U.S. economy enters a painful recession followed by a slower recovery.

Barclays: Further Lows Eyed

The bank on Wednesday slashed its year-end target for the S&P 500 to 2,500 from 3,000 previously. As CNBC reported, Barclays is the most bearish of all Wall Street banks.

In a note to investors, Barclays’ leading derivatives strategist Maneesh Deshpande said:

Equities have rallied significantly off their lows in late March as the growth rate of new infections continues to decline but estimates of economic damage are now worse than the 2008 [Global Financial Crisis].

The large-cap S&P 500 Index bottomed at 2,191.86 in February, its lowest in three years, but has since recouped a large chunk of its bear-market lows. If Barclays’ forecast is anything to go by, the index will fall another 8% from Wednesday’s closing price.

L-Shaped Recovery?

An ‘L-shaped’ recovery is a much different reality than the one most analysts are expecting. | Image: REUTERS/Mike Segar

At the crux of Barclays’ bearish call is the expectation that the U.S. economy will be slow to recover from the coronavirus crisis.

Rather than expecting a quick ‘V-shaped’ recovery, the bank is calling for a U-shaped’ or  ‘L-shaped’ path. The latter is characterized by a steep recession followed by a slow recovery that could take years to play out.

Many analysts see recession as a…

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