Invesco examines how markets may be misreading the post-COVID environment, arguing equities are pricing in recovery while overlooking a severe earnings collapse. The paper outlines multiple recovery scenarios and suggests policy support cannot offset fundamental damage, raising the risk that markets are overly optimistic despite what could be the deepest recession in decades.
The Big Picture – Eyes Wide Shut
Invesco
Research
39 Pages
Key Takeaways
Earnings Reality Gap: Equity markets ignore a projected earnings collapse despite the deepest recession in decades, creating a disconnect between valuations and fundamentals across multiple global scenarios.
Negative Return Skew: 12-month return projections show a negative skew, with equities underperforming other cyclicals while credit and real estate offer relatively stronger expected outcomes.
Asset Allocation Shift: Model portfolios move to maximum allocation in cash and investment grade credit, while equities are underweight and gold reduced to 0% exposure.
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