Bull & Bear Wearing Masks

Coronavirus Recession: How Long Will it Last?

April 20, 2020

By Ted Hanson
Securities Analyst 

The world as we know it changed dramatically in the last six weeks.

March started with hope and optimism as the U.S. stock market reached new all-time highs in the previous month, and COVID-19 cases were still scarce within U.S borders. The month ended with fear and volatility. The 11-year bull market came to an abrupt end. The U.S. declared a national state of emergency as the number of COVID-19 cases started to rise. Cities and states began shutting down forcing businesses deemed nonessential to close their doors in an attempt to avoid the worst-case scenarios of the spread of the coronavirus.

Assessing the Economic Impact of Coronavirus

The U.S. and likely the world are already in a recession. The first glimpse of the depth of the recession is now becoming apparent. 

Retail sales posted the worst monthly decline on record, falling 8.7% in March. The decline reflects the consumer’s inability or unwillingness to leave the house and visit stores, restaurants, bars, etc. Clothing, furniture, food service, sporting goods, auto and gas station sales were among the hardest hit sectors. A large increase in food and beverage purchases along with smaller increases in general merchandise and personal care spending were not enough to offset the decline from the hardest hit areas. This plays a significant role in the U.S. economy because consumer consumption accounts for two-thirds of the economic growth.

Chart: Retail Sales, Month to Month

Jobless claims have also had a dramatic shift. The weekly initial jobless claims reached record levels, bringing the total number of unemployment claims to 22 million in the last four weeks. Current estimates show the unemployment rate could reach 15% by the third quarter of 2020.

Chart: Jobless Claims 

The economic data from March paints a grim picture for the month ahead. Business closures and stay-at-home orders became widespread in mid-March and will continue through April.

How long will the slowdown last?

The answer is unclear. The biggest factor is how soon the government-mandated shutdowns can be lifted, allowing businesses to reopen and people to return to work. Only time will tell, but our opinion is that governments will err on the side of caution and the reawakening of the global economy will be more gradual as a result.

While it is unclear how long the recession will last, the stock market may already be looking past the negative news toward a recovery. The S&P 500 had its best weekly gain since 1974, rising 12% the week before Easter. This major large-company benchmark rose again last week, bringing its total gain from the low point in March to 28.5%. One of the key drivers is the recent data showing the cases of the COVID-19 plateauing. Another key driver is the Federal Reserve’s willingness to pull out all of the stops to help stabilize the economy, announcing several additional stimulus measure over the last several weeks.

What should we do when uncertainty rules? 

As we said in last week’s commentary, our message is consistent. Do not try to time the markets. Anyone can be successful once or twice in a row, but the true path to success is to choose an allocation appropriate to your age and risk tolerance and contribute on a regular basis. Rebalance to your long-term target when market movements push your allocation out of balance. Lastly, stay diversified. One of the best ways to reduce volatility is to spread your risks. Sometimes there are few places to hide, but over time, a broadly diversified portfolio will smooth the inevitable rough spots. 

Nobody knows what the future holds, but in times like this, markets often rebound well before the economic data show improvement. As a reminder, talk to us. We do not have all of the answers, but we can provide a neutral view of your position, plans and the opportunities and risks available to you. We will work together to help you reach your financial goals. As always, stay safe.

About the Author

Ted Hanson

Ted Hanson is a Securities Analyst within the Wealth Management Division at Security National Bank. As a securities analyst, he manages client portfolios, analyzes securities and performs daily trading activities. Ted is a graduate from Morningside College with a degree in finance and accounting.