What will recovery look like?
- COVID-19-related shutdowns have driven us into a recession, with record-level, double-digit unemployment
- Government policymakers have provided unprecedented support to sustain the economy
- The shape of our economic recovery will depend on the timing of an effective vaccine
We are currently in a pandemic-driven recession. GDP dropped 5% in 1Q20, and estimates put the drop over 50% in 2Q. Unemployment peaked at 14.7% in April and is likely to remain in the double digits through the remainder of this year. A full economic recovery probably won’t happen until there’s a vaccine. In the interim, economic stability will depend upon the tempo of re-opening and the ongoing support provided by the government.
There is a tradeoff between public and economic health
In our initial attempt to slow the course of the pandemic, we shut down 95% of the economy. But as new cases began to slow down, many people relaxed social distancing constraints and demanded re-opening. Since then, COVID-19 cases have picked up in some regions creating a reversal from politicians about the pace and extent of future re-opening initiatives.
We’ve seen unprecedented fiscal and monetary response
The CARES Act provided $2.3 trillion in stimulus to individuals, businesses and municipalities. Then, on June 5th, the Paycheck Protection Program Flexibility Act eased some of the rules regarding business’ use of the funds provided in the program. In addition, the Federal Reserve has stepped up, expanding its balance sheet and launching or re-opening eight lending facilities, to provide additional credit. Comments from Fed officials also suggest that interest rate hikes are unlikely in the next two years.
Potential Recovery Scenarios
The path of recovery will be driven by health care response
There has been much discussion regarding what our economic recovery will look like, whether a quick recovery in the shape of a “V,” a slow but steady recovery in the shape of a “U,” or a recovery followed by a second recession and subsequent recovery in the shape of a “W.” Ultimately, the shape of things to come will most likely be driven by the timing and distribution of an effective vaccine.
Think about your long term plan
A recent Fidelity study which analyzed the selling of equity holdings from February 2020 to May 15, 2020 showed at least 25% of investors, aged 60 and above, sold their equity holdings, putting funds into treasuries and money markets, even as those rates plunged. For most people, this move will likely prove to have been inconsistent with their long-term goals. As always, we remain focused on helping you, our clients, achieve your life and financial goals. If you have questions, or if we can assist your friends or family members, please feel free to reach out to us.