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CDC’s Deathblow to the Economy Could Mean Imminent Stock Market Plunge

Last Updated September 23, 2020 2:01 PM
Chinmay Pandya
Last Updated September 23, 2020 2:01 PM
  • The CDC has all but confessed that the U.S. is losing control over the virus.
  • V-shaped recovery theory will prove to be a fantasy when another wave of virus disrupts business.
  • When the reality of a permanently scarred economy begins to hit the bulls, the U.S. stock market could undergo a considerable pullback.

On Monday, the Center for Disease Control and Prevention (CDC) admitted that the U.S. has “way too much virus”  to control the pandemic after a worrying spike in cases across the country. This means that the virus will ravage through the population in the coming weeks. It will not stop until it has claimed all its victims, including the U.S. stock market.

US daily coronavirus cases
Daily new infections cross April’s peak. | Source: Worldometers 

The U.S. stock market was rallying in hopes of a V-shaped recovery. Progressive reductions in weekly jobless claims were one of the key reasons.

S&P 500 chart
The S&P 500 underwent a remarkable recovery after the March crash. | Source: Tradingview 

The CDC’s confession will ensure that V-shaped recovery dreams begin to fade as reality starts to hit.

Nearly half of U.S. Adult Population Is Unemployed, Possibly Permanently

The stock market bulls kept believing that the virus hit its peak on April 24, when 39,116 cases got reported in a single day.

That number was the highest single-day surge before June 26, which saw 47,341 cases reported. More worryingly, this was before the CDC came out with their statement.

The U.S. stock market surged on the belief that job losses were temporary . The claims kept incrementally reducing, dropping to 1.48 million in mid-June from peaks of 7 million in April. Investors thought things would gradually return to normal as more Americans got their job back.

However, they were mistaken.

The latest data from the Bureau of Labor Statistics show that nearly half of the U.S. adult workforce is out of jobs. 

U.S. employment-population ratio
A staggering 47.2% of the U.S. adult population is out of work. | Source: Bureau of Labor Statistics 

The recent spike in cases will deal a psychological blow to businesses. Having to endure another lockdown or operate under restrictions will hinder the ability of companies to rehire workers.

The COVID-19 era has forced the labor market to transform. Businesses need to ensure all employees operate with proper protective equipment, which will drive costs upwards.

Fed Has Inflated the Market Bubble, Causing Huge Distortions With the Real Economy

Ever since the U.S. stock market hit the March lows, the recovery has perfectly coincided with the rise in the Fed’s balance sheet. When the balance sheet expansion stopped, the market pulled back in harmony.

Federal Reserve assets to stock market comparison.
Liquidity injections drive the stock market rally. | Source: FRED 

Meanwhile, this growing bubble caused a big disconnect with the real economy.

The Buffet indicator, showing distortion in GDP and U.S. stock market
Massive distortions in the real economy and the S&P 500. | Source: Longtermtrends 

It sure looks like the U.S. stock market has a ton of things to absorb. In the weeks to come, the fact that the U.S. economy will emerge from the pandemic with a permanent scar is going to weigh heavily on the stock market. Sooner or later, a crash will restore sanity.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.