RV Blog Harrison: A Late-Summer Selloff is Possible

Harrison: A Late-Summer Selloff is Possible

Your Real Vision Daily Briefing for June 8, 2020

Ed Harrison and Ash Bennington reflect on a steepening U.S. yield curve as U.S. equities continue their ascent

  • Markets are up and a positive sentiment prevails, which lends momentum to the possibility that we may see a V-shaped recovery after all.
  • Structural factors like private debt, consumption patterns, stimulus, and earnings all continue to be relevant and combined with the risk factors at play, may dampen the rally over the coming months.
  • The real damage done may not present itself until late summer, in September or October.


Get the latest information as we analyze the first phase of our new global economy and discuss what we think is to come.

The steepening yield curve, the continued ascent of U.S. equities, and other positive data points reflect an overall bullish outlook around the reopening from the coronavirus lockdown. But while the narrative is tilting toward a V-shaped recovery, fundamentals may come to the fore by late summer, Ed Harrison said during today’s Real Vision Daily Briefing.

Harrison said that equities are currently trading on about 80% sentiment and 20% macro, but he thinks equities will align with fundamentals over time, which is one of the reasons why time horizons are an important factor for investors to consider in their framework.

In the short term, the U.S. moving out of lockdown much more quickly than expected has been positive, but structural factors may come into play down the line that could change things dramatically, including private debt, consumption patterns, stimulus, earnings, and earnings growth over the long term.

In addition, Harrison pointed out that there remain huge swaths of risk, like geopolitical tension, election risk, and a second wave of the virus, and that markets are not taking account of this. So, while the momentum is bullish in the short term, Harrison reminded investors that there are concerns in the broader picture over the long term.

This is a long-term deflationary trend, he said, and looking forward, it seems likely that the next two years of earnings will be affected by these deflationary pressures.

Now that the worst effects of the current social unrest seem to be largely over and more states are expanding their reopening efforts, it remains to be seen how much permanent economic damage was done, how slow the recovery will be, and how much equities have discounted or will continue to discount all of this.

Harrison said that in the short term, there’s still liquidity in the market, but as we get further into summer it will dissipate and that’s when any existing fragility will present itself. He thinks our September and October data will show a material slowing and that’s when we will see a selloff.