How likely is a V-shaped recovery curve? That question may still be up in the air, with positive May unemployment numbers giving hope to advocates of a fast recovery offset by climbing COVID-19 cases, hospitalizations and death rates in major cities throughout June, following a post-Memorial Day surge.
>h2>What Is a V-shaped Recovery?
A V-shaped recovery describes the charted course of a sharp economic downturn with a fast recovery in growth. In the best-case scenario, the 2020 COVID economic crisis may result in a V-shaped recession. If so, the economy would rebound in months rather than years, perhaps as fast as it dove in the second quarter.
What Are the Latest Indicators?
The sacrifices made in the United States and other nations to manage the COVID-19 pandemic have had severe financial consequences and include restricting travel, shutting down nonessential businesses and maintaining social distance via remote work and other measures.
As of June 8th, according to The National Bureau of Economic Research (NBER), the United States officially entered a recession. The NBRE noted that the contraction started in February 2020. This is the first U.S. recession since the Great Recession that ran from December 2007 to June 2009.
According to the U.S. Bureau of Labor Statistics, 2.5 million Americans filed for unemployment in May. However, the total unemployment rate decreased from over 14% in April to 13.3% in May. However, many believe the real number of unemployed nonfarm workers could be much higher.
Despite the market dip earlier this year. Many trading platforms in North America have seen a rise in the number of people trading stocks. The stock market does not always follow the same path as the economy and so it’s possible the current rebound is an indication of investor positivity.
What Are the Predictions for Next Quarter?
According to the Conference Board, the September monthly economic output will probably be 6% lower than late 2019. Growth in Q4 will likely continue to struggle to return to 2019 levels.
Morgan Stanley mirrors this prediction, saying the economy should return to pre-coronavirus levels by the end of the year. The financial giant's economists call for a V-shaped recovery, based on the May growth data. They predicted a sharp downturn and fast recovery, with an expected GDP decline of -8.6% year over year for the second quarter. According to Morgan Stanley, the nation will recover to 3.0% GDP growth by the first three months of 2021.
Economists for Morgan Stanley list the following reasons for their predictions:
- The recession doesn't indicate systemic declines but rather indicates an external shock that the economy simply could not absorb
- Deleveraging pressures (borrowing for the stimulus package to kickstart the economy for one) should decline
- Decisive policy support can boost the recovery
Other Positive Indicators
The grim but better-than-expected May jobs report isn't the only sign that the economy is on the upswing.
Apple reported that requests for driving and walking directions have almost reached pre-pandemic levels, indicating that people are no longer staying home. More people are flying too. Major airlines are ramping up some flights suspended due to the coronavirus.
Oil prices are already showing a dramatic "V" recovery for West Texas Intermediate, which plunged below $0 in April — for the first time in history. The increased demand and production of gas has put the U.S. oil price back to early March levels.
Not all outlooks are rosy. For example, the International Monetary Fund in early June warned that the worldwide economy wasn't recovering as quickly as expected and that "profound uncertainty" shadows positive outlooks.
As the Dow and other indexes rise and fall with coronavirus increases and declines, the world waits to see what the coming months may bring.
What's Happening with Coronvirus Levels?
Recent jumps in Beijing's COVID-19 cases and developing hotspots in the United States have raised additional uncertainty about the economic recovery for the rest of 2020. Rising hotspots followed Labor Day celebrations, declining numbers of people wearing face masks and the reopening of businesses in many states. Hotspots, where the number of cases and hospitalization are on the rise, include Oklahoma, Texas, California, Oregon, North and South Carolina, Mississippi, Arkansas and Utah.
According to the Kaiser Health Foundation, the coronavirus is still not done with the United States, despite the number of states re-opening their economies. Nearly half the states report rising numbers of cases, and hospitals in major cities are preparing for the worst.
According to The Hill, the public will continue social distancing and other protecting measures are weakening. Weeks after revelers left home to enjoy Memorial Day celebrations, Houston, Phoenix and other cities reported alarmingly high hospitalizations.
Rising Debt Levels
President Donald Trump has been a vocal advocate of re-opening the economy in the United States, despite the continuing spread of the coronavirus. Economists at JPMorgan Chase highlighted the added risk of surging debt and deficits following the massive fiscal stimulus. This could hamper future injections of cash into the flagging economy if skyrocketing debt causes legislators to balk on future stimulus initiatives.
Will All Stocks Follow the V Shaped Recovery?
It’s likely not all companies will be part of this V-shaped recovery. Companies in the travel and tourism sector are some of the worst companies affected. Businesses in the online sector, on the other hand, are booming. Many investors that never before knew how to buy stocks have rushed to buy these “discounted” and “booming” public companies. Companies that suffered include BOEING (BA), AMERICAN AIRLINES (AAL) and DISNEY (DIS) and LYFT (Lyft). Those that have gained a headwind include NETFLIX (NFLX), Zoom and Loom.
Image Credit: Reforge
Although a V-shaped recovery curve would mean a chance to return to pre-COVID-19 prosperity, it may come at a cost, as officials and citizens in the United States and around the world face a dire choice. It may come down to a choice between saving lives and saving the world's economy.