Maybe.
This is a matter where if it happens, I shall be proven wrong. I have mostly emphasized how much uncertainty and lack of knowledge we face about the pandemic as well as the economy in this situation, and have as a result largely stayed away from making specific or definite forecasts on those matters. However, here and in other places on the internet, I have made a lot of forecasts that the time path of GDP is likely to look like a “lazy J” or “whoosh,” a pattern of slow recovery after the very rapid decline, with a possible W if a second wave of the pandemic hits hard. What I often dismissed, sometimes rather pompously to people who seemed to push it for blind political or ideological reasons was that there might be a rapid bounceback, a V-shaped recovery. Now that it looks like it might happen, or at least a modest version of it, so I may be wrong on my past forecasts.
Curiously, as noted in a fairly recent post, I was one who was not surprised by the net increase in employment in May, given the evidence noted in still earlier posts of a likely turnaround in GDP that probably dates back even into late April and probably not later than early May, looking at figures on gasoline demand and carbon emissions. It seemed not surprising that this turnaround would lead to some new hiring, even as further layoffs were clearly happening. But most of this data seemed consistent with the Whoosh scenario, with these renewed increases occurring at rates much lower than the rates of preceding decline. So the net increase in hiring in May was only 2.5%, large for normal time, but only beginning to offset the double-digit plunge that had happened before it.
It is important to remember that much of the rebound in the S&P PE is due to weaker earnings. In the second quarter earnings are falling at double digit rates. But if second quarter real GDP is falling at a 40% to 50% rate earnings estimated are still too high.
Wall Street says do, not fight the Fed. One measure of Fed policy is money supply growth and as the chart shows MZM ( zero maturity growth) is surging to near record highs. This implies that the market PE is going to continue to rise and it should pull the overall market with it despite the fact that earnings estimates are probably too high.
