We use data from the aggregate stock market and dividend futures to quantify how investors’ expectations about economic growth across horizons evolve in response to the coronavirus outbreak and subsequent policy responses until May 2020. Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model. We show how the actual forecast and the bound evolve over time. As of May 12, our forecast of annual growth in dividends is down 16% in the US and 23% in the EU compared to January 1, and our forecast of GDP growth is down by 3.6% in the US and 5.0% in the EU. The lower bound on the change in expected dividends is -29% in the US and -38% in the EU at the 2-year horizon. News about fiscal stimulus around March 24 boosts the stock market and long-term growth but did little to increase short-term growth expectations. Expected dividend growth has improved since April 1 in both the US and the EU. We show how data on dividend futures can be used to understand why stock markets fell so sharply initially, well beyond changes in growth expectations.

 

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