The April jobs report laid bare the economic impact of the coronavirus pandemic.
The loss of 20.5 million jobs in April alone has sent the unemployment rate to 14.7%, its highest since the end of World War II. On Thursday, it was announced the total number of jobless claims is up to 33.5 million over the past seven weeks.
Five market experts weigh in on what this means for the U.S. economy.
'Composition of the economy'
Kate Moore, head of thematic strategy for BlackRock's Global Allocation investment team, says investors should turn their focus to the composition of the economy rather than its size.
"There are so many variables in predicting economic growth over the next couple quarters or the next couple of years even. And so, as investors, you know, we can't focus so much on the size of the overall economy. I think the real project has to be the composition of the economy. And over the last six to eight weeks, we've started to see some consumption patterns change. What I'm really looking forward to is sort of thinking about the themes that are going to be dominant in the overall market. Where will people feel comfortable spending over the forward quarters? Where will businesses be putting their investments spent around technology [or] around systems? And, you know, really focusing on the composition, not the overall size. I have to say, as investors, it's tempting to look really far forward. We always want to have a long-term perspective in terms of forecasting earnings, or in terms of forecasting overall activity, and it is really challenging in this environment. So, getting to know balance sheets and really digging deep with management teams I think is the best way to pick the winners."
Continued government intervention
Glenn Hubbard, former economic advisor for the White House, says the government needs to continue to provide support during the economic recovery period.
"I think we could be back to the same level of GDP by late 2021 or early 2022. That's not a good news story, and it could well be worse. What we need is government intervention to continue. ... We've got to focus on the public health aspects first, the testing and tracing, and then see what it needs to be for a gradual reopening. And that's probably going to require continued support for businesses and employees during that period of reopening. Government really has to get its act together, and I say government meaning both the federal government, which provides a lot of the funding, but [also] the state government, where a lot of the action will occur… The Fed will be standing up its so-called Main Street lending facility, but we're going to need help for small businesses and mid-sized business employers. Whether it's partial wage credits, whether it's an extension of PPP, whether it's the Fed getting its act together, we need the Treasury Department active and thinking about these things now."
2021 could be a 'boom year'
Jeremy Siegel, professor of finance at the University of Pennsylvania, says future economic growth hinges on therapeutics and vaccines.
"There's something I emphasized very early on when we began to get this virus news, and I think it's an important reason why the stock market has actually held up so well, is that more than 90% of the value of stocks is from earnings more than 12 months in the future. These next 12 months are going to be [a] disaster — is a disaster — but stocks are the longest-lived assets and more than 90% of their value is earnings from the second quarter of 2021 beyond. Now, [how do we get there?] Depends on therapeutics, and vaccines. And that's why any encouraging news on that is so great for the stock market, far more important than whether unemployment claims are going up or down, or durable goods are going up or down. I mean, we know that this impact has been dramatic. If we get therapeutics that reduce the severity of this disease to a bad flu or a vaccine that could inoculate the at-risk members of the community, again that reduces that fear, [then] I think 2021 can be a boom year. With the liquidity that the Fed is adding, unprecedented, it could be a really good year."
A 'U'-shaped recession
David Kelly, chief global strategist at JPMorgan Asset Management, says the stock market is not reflecting the severity of the economic impact.
"I think the stock market probably will see some further correction here. I think there are too many people betting on a 'V'-shaped recovery in the U.S. economy, but we think it is a 'U'-shaped recession. You know, this has carved out the first of the left wall of the 'U' year, but I think the unemployment will go up a little bit more in the next few months before it begins to come down, then it comes out very slowly. But I think we have to get into 2021 before we see a meaningful recovery, and I don't think that that is built into the stock market. As for the bond market, I don't think the rates ought to go lower here, because we are printing a huge amount of money to buy a huge amount of bonds. We could see another $2 trillion in fiscal stimulus here. So, at some stage down the road ... once we've got a recovery going, the Fed is going to have to raise rates. And that makes interest rates at these levels somewhat unappetizing, so I think both the bond market and the stock market are, to some extent, looking further ahead. I think the bond market can see that at some stages, there will be higher rates to pay for this. And I think the stock market is hoping that this thing's not too long, but, boy, is it deep, and I don't think the stock market is quite reflecting the depth of the recession that we're seeing right now."
Stock market looking ahead
Ed Yardeni, president of Yardeni Research, says consider the market's focus on pre-coronavirus trends and the federal relief in March as contributing factors to the current growth in the stock market.
"Right now, of course, we're seeing profit margins implode, because that's what they do in recessions and this is a depression-like recession that's very concentrated probably in the first, second and third quarters. But the market's looking beyond that, for sure, and it's focusing on trends that were underlying our economy even before the great virus crisis, as I call it. ... And those trends are mostly digital and biological technologies. There are a lot of companies that have very large market cap in those areas, which is why the market has done so well. The other thing to consider, of course, is the market I think did bottom on March 23 when the Fed said, you know, "The heck with the bazooka, the heck with helicopters, we're just going to load up B-52's with cash" ... so the liquidity is there. And by the way, there's still like over a trillion dollars that was accumulated by the mad dash for cash during March that's just sitting there that still, I think, provides a cushion for any downside of the market."
