Earlier this month, I brought you this story.
Watching what’s happened in the financial markets over the past two weeks can be unnerving independent of any financial considerations. The velocity of movement down and up, though mostly down – with stocks and record low bond yields have the potential feeling of something bigger. So, is it? Is this the first sign of a recession? The first thing to know is that we never officially know until we’re already in one. A recession is two consecutive quarters of negative GDP growth. We had a solid 2.1% growth to end 2019 – so we wouldn’t know until July at the soonest. That doesn’t mean it’s not possible to understand what’s happening. Is this a blip on the economic radar or the start of a recession that’d end the longest expansion of the US economy in history?
The first thing to know about the financial markets, especially the stock market, is that uncertainty means selling. The coronavirus has without a doubt had a negative impact on the world economy. That necessarily means American multinational companies have and will continue to be negatively impacted by the disruption caused by the virus and that’s without it being a show stopper in the US. But there’s a big difference between short-term disruptions and bigger issues. Which is it? Because we don’t know – that's where the selling came into play. Stocks are now trading at fair value to their trailing-twelve-month earnings. What’s that mean in English? Zero growth. Investors have taken the market down to the presumption of the status quo. That means there’s upside if we grow and downside if we hit a recession. But that’s still about stocks and not the broader economy. So, what should you watch for? Jobs.
That was the conversation three weeks ago. Obviously, the situation deteriorated from zero growth to negative growth. As I mentioned then, jobs would be the most important barometer. That remains the case. According to consensus estimates by the end of this week, we’ll have experienced 3 million layoffs in March. That’s more than half of the total unemployed population of the US prior to the month. Simply put, there’s no way to avoid recession but how to best manage it. That remains about jobs. It’s critically important to attempt to keep as many companies and jobs intact as possible until this virus passes. Every subsequent job loss will make it harder to recover. As we wait and watch what’s happening in Washington, aside from health considerations, we must remain laser-focused on jobs. It clearly is time to worry about the economy but that doesn’t mean giving up on it. That’s not an option.
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