Here's what four market experts believe lies ahead.
Mohamed El-Erian, chief economic advisor at Allianz, said the key question to keep in mind in the volatile market in not whether to engage, but rather how to engage.
"It's very good news. Remember there are three steps to the health solution. One is treating the illness better, the second is containing the spread of the virus, and the third is immunity, and on the first one we have better news, that's really good news. It's also good that we have a road map to how we are going to open the economy and we need it after this week's data. Retail sales, industrial production, jobless claims, housing, they were all pretty scary. I have been saying bet up in quality and if you look over the last few weeks, it is the companies with a better balance sheet. It is the companies that live mostly in virtual space that have done better. The Nasdaq has outperformed the S&P and has certainly outperformed emerging markets. So, the up in quality trade has worked so far. So, the question is how do you stay engaged in the market? Not whether you should stay engaged in the market. The reason why I pause is because of the level of valuations. The S&P is about 20 times, the P/E ratio is about 20 last year's earnings. Now a few companies in tech, in health care, some very essential consumer staples are going to have similar or better earnings, but most will not; not this year, not next year. So, it's the valuation issue that sort of holds me back but the relative value trade, the up in quality trade, I like it all day long."
Mark Mobius, founding partner of Mobius Capital Partners, said he expects the accelerated speed of recovery to lead to a market correction.
"I think what you've seen is an incredible recovery and if you define a bull market as a 20% rise, we're in a new bull market. But I don't think so, because I think at the end of the day the earnings hit on so many companies around the world, not only in emerging countries but in developing countries, has not really sunk in. And once those earnings hits come out then people will have some second thoughts. Nevertheless, we've been buying as I mentioned a few weeks ago, we figured it was a good time to be starting to buy but reserve some cash outside so that when the market corrects again, we can come in again. So I expect another correction because this recovery has been almost too fast. So, we got to keep some powder dry, let's put it that way."
Diane Swonk, chief economist at Grant Thornton, said there could be a very rocky road ahead.
"The second half of the year is still a very rocky period and I think that's where the markets are really not getting this in terms of the risk. Not only do we have draconian cuts at the state and local level, if we do not get transfers to the states, it's some $500 billion shortfall they're looking at over two years -- twice as bad, at least, as the Great Recession. And we know that from the Great Recession the reason we didn't have more of an employment recovery early on was the hurdles that were at the state and local level. We didn't transfer money to the states and that's a headwind in the second half of 2020 and into 2021. So, we're looking at flat if we're lucky in the third quarter. We could have another leg down in terms as we try to reopen then we stumble, if we have to have lockdowns again."
Andrew Slimmon, managing director at Morgan Stanley Investment Management, said a pullback to the March lows is unlikely due to developments in testing and vaccines.
"The most speculative stocks are obviously the travel and leisure and the ones that will survive, they'll be the biggest returns. I don't think you need to even actually delve down to that level. I mean, people are going to go back and buy a cup of coffee, go get a burger, and go fix up their house. So I think consumer discretionary stocks that have been beaten down, some of the payment processing companies that have been beaten down ... I think the pricing is substantial. So, yeah, the banks, there will be some near-term problems, but the point of all this is by the time it's all clear that we are going back to coming out of our house, these stocks are going to be up a lot. Just like the market has rallied close to 30% off a low, even though we're still sheltering at home because the market is a forward predictor. One of the things as it pertains to the market, one of the things that will put a floor on too much of a pullback even if we had a second wave, is ... we're not going back close to where we were March 23 because of the development of these drugs."