At the end of 2019 and the start of 2020, the economy was looking great and the stock market just kept on ticking up to newer highs. Analysts and forecasters were calling for the top stocks and the major indexes to keep surging. Then, just like that, the situation changed with the COVID-19 pandemic and the world entered into an insta-recession.

Now that new realities are being felt, even if they are not fully quantified, Wall Street is having to dial down its expectations for 2020 and even 2021 as the economic reset button is on hold due to the number of coronavirus cases still growing. Credit Suisse has a “good news, bad news” view of the market ahead. The good news is that the firm expects the stock market to recover handily. The bad news is that those highs from February probably won’t be seen again for a long while.

After the drumming that stocks have taken, with the S&P 500 losing 34% from its peak, it may sound like good news that Credit Suisse anticipates the S&P 500 will rise by 21% by the end of 2020. It probably also sounds good that the firm sees an additional 15% upside in 2021.

Where things look bad here for the stock bulls is that the S&P 500 peaked in February at an all-time high of about 3,386. Based on the new realities, Credit Suisse has dropped its prior 3,300 target for the S&P 500 for 2020 to 2,700. The firm also initiated a 2021 target of 3,100. If the firm is right, those targets represent that upside of 21% this year and another 15% next year. In short, Credit Suisse now does not see the highs from February being hit this year or the next.

As part of the outlook, Credit Suisse expects U.S. gross domestic product to contract by 12.5% or so in the second quarter of 2020. That is the base case as well and it is expected to be followed by a robust bounce. For a comparison, note that the worst quarter in the financial crisis saw a decline of about 8.5%.

The firm sees earnings for the entire S&P 500 falling by 24% in 2020 but a recovery of 20% in those earnings in 2021. Earnings estimates for the S&P 500 were downgraded to $125 per share (from $165) in 2020 and to $150 (from $176) in 2021. How this is broken out is that per-share earnings are now projected to decline by 37% in the second quarter of 2020 and by 43% in the third quarter.

Credit Suisse sees a key difference here from the global financial crisis. The current situation should be steeper in the contraction and steeper in its recovery. The firm also believes that a slowing in new coronavirus cases is more key to a market bottom than the government bailout. The report said:

Reported cases and jobless claims will surely rise in coming weeks, putting further pressure on stocks. However, markets should quickly regain their footing once newly reported cases peak. While entirely necessary, government largess alone will not be enough to establish a market floor.

Investors should keep in mind that all the bear markets and market crashes have very different causes and each is different in how deep it has gone. In recent calls from forecasters, the one thing that is expected in this recession, similar to past recessions, is that prior stock market highs can take years to be revisited. The S&P 500’s highs of 2007 before the financial crisis experienced that major V-bottom in March of 2009 after nearly a 60% drop from peak to trough, but it was not until mid-2013 that the market finally reached those highs again.

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