Market Reality Check: Why a V-Shaped Rebound Is Unlikely, Per @bravosresearch (May 20, 2025)

An X thread shared by @bravosresearch argues that while some investors expect a V-shaped recovery in the stock market similar to previous instances (e.g., 2020 post-COVID crash), the current economic environment lacks the conditions that drove those recoveries, particularly massive liquidity injections. 

Key points include:

• Absence of Massive Liquidity: Unlike the 2020 recovery, which was fueled by significant central bank interventions and government stimulus, the current market lacks similar support, reducing the likelihood of a sharp, V-shaped rebound.
• In 2025, no comparable liquidity injections are occurring. The Federal Reserve's rate cuts over the past year seem insufficient to mimic the 2020 stimulus-driven recovery. A US debt downgrade by Moody’s and rising bond yields signal tighter financial conditions, with higher yields increasing borrowing costs and lowering bond prices.
• Conditions for a V-Shaped Recovery: For a V-shaped recovery to occur, the economic outlook would need a dramatic improvement, with fears from earlier in 2025 (e.g., trade war concerns, market volatility) dissipating quickly. This is seen as a "big ask" but not impossible.
• The market’s path depends on whether positive developments (e.g., trade deal, continued earnings strength) can outweigh negative pressures. The high consumer inflation expectations (7.3% per the University of Michigan, as noted in Ben Reppond’s broadcast) suggest persistent economic unease, making a rapid shift in outlook difficult.
• Optimism from US-China Trade Deal: Some investors are hopeful due to a potential US-China trade deal, which could alleviate tariff-related pressures and boost market sentiment.
• Historical Precedent: The 2020 market crash saw a 35% drop in stocks due to COVID, followed by a rapid recovery to all-time highs, driven by liquidity and policy support. The author uses this as a benchmark for what a V-shaped recovery entails.
• Corporate Earnings Resilience: Despite a 20% market drop in 2025, S&P 500 earnings estimates are higher than in January, supported by:
• A weaker US dollar, boosting international revenues for US companies.
• Lower gas prices, supporting consumer spending.
• The lagged effect of Federal Reserve rate cuts over the past year, which may now be stimulating economic activity.
• Tariff Concerns: The author identifies tariffs as a significant risk, overshadowing positive factors and lowering the odds of a V-shaped recovery due to their potential to disrupt supply chains, increase costs, and dampen economic growth.

Conclusion

The X thread argues that a V-shaped recovery in 2025 is unlikely due to the absence of massive liquidity injections, persistent tariff risks, and high market valuations, despite supportive factors like strong corporate earnings, a weaker dollar, lower gas prices, and Fed rate cuts. While a US-China trade deal could spark optimism, the conditions differ significantly from the 2020 recovery, which benefited from unprecedented stimulus. The analysis aligns with cautious perspectives from Grantham, Oakley, and Rogers, who highlight risks from overvaluation, tariffs, and rising yields, suggesting investors should temper expectations for a rapid rebound and prepare for volatility.