The Week Ahead – Light at the End of the Tunnel

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

This week all eyes will be on Thursday morning’s unemployment claims report. The state of Kentucky received 9,000 claims just last Tuesday. This sounds like an innocuous amount, but when you consider that on average they get 2,000 claims a week, it really puts things into perspective as to what we are likely to see over the next several months. We are expecting jobless claims to increase dramatically for the month of April. It is important to note that the job losses will be concentrated in the retail, leisure ,and hospitality sectors. These tend to be lower wage jobs, which means that unemployment insurance payments will unfortunately not provide much relief to laid-off workers.

While the Federal government has adopted a “whatever it takes” approach to helping provide access to liquidity, the fiscal response is taking longer. Ultimately, the government’s goal is to give companies a path to stay solvent until we can restart the economy.

Despite social distancing beginning in the first quarter, there has been so much spending at grocery stores that it is likely to offset a lot of weakness from other parts of the economy. However, the second quarter could see a 10% decrease in GDP growth with risk to the downside of that estimate. While this is a large drop, if we begin to see COVID-19 infection rates fall and a return to normalcy, we will be setting ourselves up for a very strong recovery in growth as pent-up demand is unleashed.

The timing of the recovery will depend largely on the level of success there is in stamping out the virus. While China, South Korea, Taiwan, and Singapore have been seemingly successful, western countries such as Italy and Spain have had a difficult time stemming the level of infections. The development of a vaccine or a treatment that dramatically reduces the severity of symptoms will be pivotal to economic recovery and a return to normalcy. Overall, we expect a deep, but ultimately short recession as we move through this difficult time. The current situation is changing rapidly, but it is important to remember this is a temporary problem and there is light at the end of the tunnel; the question is, how long is the tunnel?

Data deck for March 23–March 27: