The fall in the S&P 500 from its peak on 19 February has been dramatic, with the equity benchmark losing close to 35% of its value in just over a month. During the Global Financial Crisis it took a year to fall that far. Of course, the COVID-19 outbreak is a very different, and more immediate kind of economic shock that has resulted in the forced shutdown of a large number of industries. Last week, the French statistical agency, INSEE, estimated that activity in that country was running some 35% below normal levels. There is no doubt that the global economy is suffering a severe contraction, on a scale not seen in modern times. The only question is, how long will it last? Since finalising our Global Economic and Markets Outlook for 2020 Q1 just two weeks ago, we have raised the weight we attach to a V-shaped recovery, where global output recovers within four quarters almost to the level it would have been had the virus never emerged. But we have also increased the weight we attach to an L-shaped recovery, the most pessimistic of our three scenarios, where COVID-19 continues to depress economic activity until a vaccine is found, triggering a financial crisis. To us, the range of possible outcomes is almost bimodal. Equities rallied last week, as it became clear that the US stimulus package would pass. But volatility remains high, and it is unlikely that we have seen the bottom yet.
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