April 27, 2020

Coronavirus Recovery: The Market Says ‘Yes’, But the Economy Still Says ‘No’

Coronavirus Recovery: The Market Says ‘Yes’, But the Economy Still Says ‘No’

Coming into 2020, it had been 11 years since investors encountered a true bear market. However, worries about the economic impacts of the coronavirus pandemic quickly brought this streak to an end.

Interestingly enough, we have witnessed a V-shaped recovery, though it has been in the stock market, not in the economy.

On the one hand, the stock markets have begun stabilising and even rising. Wall Street is starting to get its head around the magnitude of the crash, the first step in figuring out rational pricing.

On the other hand, all signs point to a deepening recession even as many countries have begun focusing on how to reopen schools and businesses.

On the one hand, buoyant stocks indicate that traders expect the economy to soon rebound from the downturn. On the other hand, reports on layoffs, housing, consumer confidence and the health of businesses have left the majority believing that a wider economic recovery may not go as smooth as first thought.

Yes, we admit, it’s all a bit confusing.

Because despite President Trump repeated predictions that economic growth will take off like a “rocket ship” once the coronavirus pandemic ends, the U.S. economic recession looks to be much worse than thought just a few weeks ago.

In addition, the eurozone economy is set for its deepest recession on record and the British economy is also expected to suffer its worst peacetime downturn ever.

Marketwatch.com recently reported that in a new survey looking at the impact of the disease on global business, the majority of CEOs around the world expect a long and uneven ‘U-shaped’ recovery from the coronavirus pandemic: 61% see a sharp recession followed by a longer recovery, a survey of 3,400 chief executives across 109 countries found.

Many economists have also acknowledged the severe economic damage wrought by the coronavirus, saying the current downturn is “much more challenging” than the global financial crisis and “better days” may not arrive until 2021.

And it’s not surprising.

Although the nearly global lockdown and social distancing have been somewhat effective in slowing the spread of the COVID-19 virus, it’s still unclear when or how the pandemic will end.

With the exception of a sudden and implausible cure for the disease, some of the worst-hit business sectors such as airlines, hotels, restaurants, theatres and pro sports will have to adapt to the new reality of increased spacing between customers, limiting sales, profits and employment levels.

Admittedly, governments worldwide have attempted to stimulate their economy by passing trillions of dollars in relief for local households and businesses. However, many economists claim that even this won’t be enough to help keep millions of businesses afloat and help people earn a paycheck.

In the U.S. alone, more than 21 million Americans have already applied for jobless benefits, with the unemployment rate topping 15%.

And the vicious cycle is feeding on itself.

The record number of unemployed has caused a massive decline in demand. Sales for most businesses have taken a steep dive, forcing companies to lay off additional employees and postpone investment.

In Conclusion

While many analysts believe that a stock market recovery has begun, it is clear that the global economy has yet to bottom out. However, one thing to keep in mind is that the markets have historically rebounded before the economy. After all, the stock market provides a view of what investors expect for the future.

Notwithstanding, a few hopeful signs emerged last week as a pair of reports showed consumer confidence stabilising, largely on the flickering hope that the economy will start to rebound during the summer. Another poll found that Americans think four of five jobs lost due to the coronavirus will return.

Until then, the psychological toll the virus is likely to play cannot be understated and may play a significant effect on just how the economic recovery will take shape.

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