Betting on a V-Shaped Recovery, and Winning

Market commentators are shaking their heads. Wall Street heavyweights are dubious. Federal Reserve officials are warning about dim prospects for a robust recovery of the devastated pandemic economy. Yet even as the U.S. economy falters and Americans suffer more from Covid-19 than citizens of other developed countries, U.S. stocks are outpacing the rest of the world’s equities by a wider margin than at any time in at least 50 years.

Illogical? Appearances would seem to say so. Loretta Mester, president of the Federal Reserve Bank of Cleveland, said this month that the recovery from the second quarter's record 32% decline in gross domestic product remains “fragile.” Money management titan Stan Druckenmiller says that the risk-reward calculation for equities is the worst he has ever seen. My Bloomberg Opinion colleague Michael R. Strain, director of economic policy studies at the American Enterprise Institute, has warned that strengthening economic indicators are chimerical and wrote last week, “Improving wage and productivity statistics are actually a sign of underlying weakness.”