Amid tumultuous backdrop, he says recovery will require patience but S&P 500 is 'still undervalued'
The economic shutdown was a mistake and it’s impossible to prove that locking down countries has stopped the virus, according to one strident chief economist.
Brian Wesbury, of First Trust, said the estimates around the number of cases and perceived deadliness of COVID-19 has proved to be less than experts originally thought. Now, amid a backdrop of mass unemployment and empty streets, many North American cities have been the location for both peaceful protests and riots, sparked by the police killing of George Floyd.
While he acknowledged these "sad events" and the centuries of discrimination that has come before, from a cold-blooded market perspective, he believes economies will recover.
“We have been through tough times before,” he said. “We have been through periods of stress and America has come through. The lockdowns are ending, these riots will end and here we sit with the S&P 500 over 3,100, which is our year-end target. Now, just because we've hit 3,100 does not mean I am selling everything and going neutral, because I think we're still undervalued.”
He added: “I've always said look to the end of 2021 and our targets for the end of 2021 is 3,600, so I still believe we're going to new all-time highs. We may slow down a little bit here, but the point is the market is still undervalued.”
Economic numbers are still ugly, he added, but green shoots continue to emerge, with the bottom in the rear-view mirror and unlikely to be tested. Wesbury believes we will head higher from here because the news will keep getting better little by little in the days, weeks, months and quarters ahead.
But he said the difficulty is you can’t turn an economy off like a light switch and then flick it back on; it takes time to regrow. The “magic” of the free market means businesses will open again – maybe not with the same owners after this tumultuous financial experience – but they will return. An optimistic look at GDP puts that at recovering to the same pre-pandemic level by the end of 2021, with unemployment taking until 2024.
Wesbury said: “It's not a complete V-shaped recovery. We have to be patient in order to get back to where we were with the economy – and that also means we need to have patience with the market.
“I know this has been a magical period where everything seems to have come back really nicely, but there will be volatility. My view is that that volatility is in an upward trend as we look into the future.”