Sharp V-Shaped Recovery for US Markets

How are you playing this V-shaped recovery in the stock market?  Are you all in on stocks despite potential negatives that might create a small correction?

Both veteran market forecasters Tom Lee of Fundstrat and Mike Wilson of Morgan Stanley are talking about nerve-wracking v-shaped recovery for the stock market.  Wilson of course is one of the most respected market commentators and it’s a treat to hear his thoughts about the stock market forecast.

Today on CNBC on Closing Bell (see video below), Wilson detailed some issues about the correction that started a year ago. Markets bottom on bad news and top on good news, and the good news is the economy might be ready to deliver better sales in 2026.  In fact, within 3 to 6 months, we might rising GDP.  Today’s unemployment report has the FED talking rate cutes, which is the key to the US economic recovery.  Wilson mentioned the Trump-trade news reports, the Fed being on hold, and that Trump’s liberation day was the market’s capitulation day.

The 3 month and 6 month forecasts are now looking brighter and a few key events will propel markets and the economy in the next 12 months.

The chart below shows the stark drop and rise of the markets, marking the strongest one since Covid times. The market fell on April 3rd and hit bottom on April 8th, a drop of 2100 points on the NASDAQ, and the S&P was down more than 600 points (5670 to 4820). The rebound to date has been astonishing, for the S&P 500, NASDAQ and Dow Jones, which have returned to almost record price levels, although the rate-dependent Russell 2000 small biz index is lagging. However, experts and analysts believe there will be more growth, after the FED cuts, Trump’s bill is passed, and some trade deals are signed. Of course, that all remains to be seen. False rallies are frequent events but so far corrections have been minimal.

Tom Lee, Fundstrat co-founder and managing partner and Fundstrat Capital CIO, joined Becky Quick on CNBC’s ‘Squawk Box’ today, said tariffs aren’t as bad as expected nor was the Tariff inflation widely predicted. He feels the tailwind for stocks is the FED easing. He cites big value in US government resources owned.  And he believes governments will be funded by stablecoins so the recovery can fund the government debt this way.

Mike Wilson believes this is going to be a broader economic recovery, for a “rolling recovery.”  Mike asked where we’re going next and whether the stock will broaden out. He believes once the FED starts cutting rates, financials, industrials, housing, manufacturing, AI, and the large caps will do well too.

He’s liking the diffusion of AI into the broader economy bringing efficiencies. He views the tariffs as being headed into a 10% VAT tax scenario for the economy. It’s the uncertainty and supply chain disruptions that hurt the economy. His firm, Morgan Stanley forecasts the S&P will hit 6,500 by year end, and Mike said he believes the US can get there. Of course, those expert S&P 500 forecasts have been yo-yoing as the political struggles continue. The battle with the FED is next.

The most well-known and regarded market forecasters don’t speak about volatile events such as v-shaped corrections.   Politics of course, is the major determinant of those market-altering falls and climbs. Whenever news events occur in near proximity, you can find such dips. The next catalysts upward would be FED rate cuts, PMI and ISM indicators, major earnings reports, consumer spending data, inflation data, and non-farm payroll, and job creation. We may already be at the worst of the trade negotiations, so any deals created would provide a big uplift (particularly that with Canada).

With lower international trade, high tariffs, and a negative international travel market, we might not expect inflation to rise which means the FED may have no real reason to keep rates high — thus beginning to reduce them.

With the FED rate expected to drop, the US housing market and small business sector would begin to recover from a long-suffering period of low activity. Lower rates would stimulate the construction market which would add inventory, and launch home sales and mortgage financing (See Rocket mortgages). That would stimulate employment, and growing consumer and business spending for the capture of massive taxes to help ease the US debt worries.

A fast-growing economy would bode well for consumer discretionary stocks, real estate stocks (REITs getting attention right now), banks and financials, and technology too. See more on the S&P sectors.

Recent History of V-shaped Recoveries

There have been a few v-shaped market recoveries in the last 4 decades including the:

• 2020 COVID Crash & Recovery: ~34% drop in the S&P 500 (Feb-Mar), full recovery by August.

• 2009 Financial Crisis Rebound: ~57% drop (2007-2009), then a V-shaped rally fueled by QE.

• 1987 Black Monday Crash: ~34% drop, recovered in about 2 years (faster than expected).

Given stock prices are rising fast, we can see investors are feeling positive, but will the FOMO segment push prices up too fast? I suspect they will, giving us a chance to buy stocks to hold for a short period, then sell, (e.g., PLTR, Google, Nvidia).

While this V-shaped curve we’re in now in summer is described by some as a check mark √, it may flatten out to slower ascent if the FED resists cuts.  The battle between Powell and Trump will be highly televised but Powell only has 10 months left in his term.  Investors know great things are coming in 2026.

See more insights and stats on the 5 year stock market outlook, and about the inflation threat that has not gone away and on the battle between Trump and the FED.