As the number of new daily coronavirus cases continues to decrease, market sentiment is shifting to the economy. There is now talk of reopening the economy later this month. While details are not yet available, a rolling soft open seems to be the most likely scenario. Certain businesses will be allowed to reopen with restrictions in place on a state by state basis.
Recently released economic data has only begun to reflect the complete extent of the shutdown of the U.S. economy. Jobless claims, which had been fairly stable at about 225,000 each week suddenly increased to 6.6 million for the last week of March and 6.2 million for the first week of April. Estimates suggest another 5 million or more each week for the next several weeks through April. Various estimates predict that the unemployment rate could jump to over 17% for April, compared to just 3.5% in February. Sales of cars, SUVs and pickup trucks fell from an annualized rate of 18 million a year in February to just 10.7 million in March, a decline of 38.4% and will certainly fall even further in April.
The sheer size of the slowdown in U.S. economic activity is hard to grasp because it is occurring so suddenly and on a scale we have never seen before. The consensus is for Gross Domestic Product (GDP), or national output, to fall at an annualized rate of 25% or more during the second quarter. Optimistically, the ensuing economic recovery that is forecast for the second half of this year will restore more than half of the second quarter decline. Because a significant portion of our economic activity has just stopped — restaurants, bars, hotels, airlines, cruise-lines, fashion retail and countless small businesses — when it all comes back online, the economic growth rate will be quite significant. Estimates suggest that GDP growth for the third quarter could be as much as 15% - 19% and estimates for the fourth quarter may be in the 5% - 10% range.
Of course the duration and severity of the current health crisis, and the ability of the rest of the world to recover may delay the U.S. recovery, or dampen the size of the economic rebound if certain industries take longer to resume normal activity. The good news, if you can call it that, is that both the Federal Reserve and the federal government are “all in” with whatever monetary and fiscal stimulus measures are deemed necessary to mitigate this crisis. Another bit of good news is that while external shocks, like this one, will have lasting effects, it remains an external event and we will get past it.
Our best advice is not to make any sudden moves with your portfolio. There is a significant amount of negative economic news yet to come, and no one knows the actual pace at which the economy will reopen. As always, discipline is key to any investing strategy.
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