US equities: Is market-based enthusiasm unfounded?

Investors should stick to their long-term strategic equity allocations

Covid-19 headlines have continued to dominate US equity market action. While the S&P 500 index has rallied to recoup all losses since its 23 March low, a second wave of coronavirus cases could upend investor confidence, raising the prospect of a fresh round of social-distancing restrictions or layoffs.

Thus far, US Federal Reserve-provided liquidity has been a powerful elixir for stocks, but its emergency measures will eventually have to be pared back. Stocks have been consolidating their post-23 March gains over the past few weeks, and we are beginning to see a shift from services/consumer-led growth toward more investment-led growth. These growth sectors currently employ nearly 40 million people - nearly three times the 13.7 million employed by the sectors expected to contract, such as restaurants and retailers. This is good news, but if the economy is transitioning from having ...