I don’t think this is a normal recession-recovery situation. It’s not a business event. It’s a completely artificial event. That means that looking at how this is going to unfold in terms of past recessions — and particularly a lot of people are going back to the Great Recession about a decade ago — is probably not going to provide much in the way of useful guidance, at least that’s my opinion.
The worst weeks for unemployment in U.S. history were recorded over the past three weeks: 3.3 million were reported on March 21, 6.9 million on March 28 and 6.6 million on April 4. Before the pandemic, the previous worst unemployment week was recorded in October 1982 when 695,000 people filed jobless claims.
I wanted to share some insights / stats with you and get your opinions.
The best-case scenario for the COVID crisis is a V-shaped recession. If this happens, the economy will rebound as quickly as it has declined, with minimal long-lasting financial damage. A sharp downturn followed by a quick rebound in growth defines the V-shaped recession. For the COVID-19 recession to be V-shaped, we would need to set up enough coronavirus testing so that people could safely go back to work without creating another surge in cases, and effectively treat existing cases. Around 38% of companies believe that the recovery will be V-shaped, with the economy rebounding by the third quarter of 2020, according to a survey from EY.
If COVID-19 causes a longer, U-shaped recovery, that could mean the economy wouldn’t begin recovering until the end of 2020 or even early 2021. EY found that 54% of companies believe that a U-shaped recession is likely.
Those arguing for the V-shaped recovery are making two wildly unrealistic assumptions. One, we re-open the economy pretty much all at once, and two, consumers won’t change their behaviors. For example, they start going back to bars and baseball games immediately.
I just sold most of my indices and am thinking about shorting S&P500. The recent rise in the equity indices appears based more on FOMO than on medical developments for dealing with the pandemic. I suspect markets will test previous lows set in March, similar to 2008-2009.
What do you think about an upcoming recession, and about the steps needed for a economic recovery?
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.