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FXTM: Wall Street too optimistic amid 'grim' economic outlook

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(Kitco News) - Wall Street may be too optimistic considering the “grim” outlook for the economy, said Hussein Sayed, chief market strategist at FXTM. The stock market sold off sharply due to economic fallout of the COVID-19 pandemic, but has recouped much of the decline. “The short-term economic outlook is looking terrible and it is likely to become even worse as more data gets published,” Sayed said, pointing out that the ADP private-sector job report on Wednesday showed the loss of a record 20.24 million jobs.“Right now, the optimistic V-shaped recovery does not look like a realistic scenario for several reasons,” the strategist said. “An upturn of this type means that most of America and the world needs to get back to work soon, but that does not seem at all reasonable when looking at trends in COVID-19 infections.” Many sectors may not recover for several years, such as airlines, leisure, auto and possibly oil, he said.There are also unanswered questions about the virus itself, including when a vaccine or treatment will be developed. “Of course, the longer we stay at home, the more progress there should be in containing the deadly virus,” Sayed said. “However, this comes at the cost of more economic damage and it is this trade-off between health and the economy which is the most awkward question leaders across the globe are having to deal with.” He suggested the recovery in the stock market is not a true representation of the economic weakness, with investors instead reacting to increased monetary accommodation and fiscal stimulus. He pointed out that the forward earnings multiple on the S&P 500 is at a 19-year high of 25, calling valuations “extraordinarily rich” when many companies are providing negative guidance. “At current levels, I think investors are betting on a best-case economic recovery scenario supported by further easing measures,” Sayed said.

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