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

The CDC says COVID-19 will now run rampant through the U.S. population. The result could be a devastating flash crash for the stock market.
  • 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.

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.

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.

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.

Liquidity injections drive the stock market rally. | Source: FRED

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

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.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

Last modified: June 30, 2020 1:39 PM UTC

Published:
June 30, 2020 1:33 PM UTC
Posted in: MarketsOp-ed
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Chinmay Pandya @debt_tears

Chinmay is an India-based financial journalist who likes writing about the U.S. stock market and precious metals. Formerly, he has written for the Times of India and First Print newspaper. You can find more of his work at www.blooddebtandtears.com and reach out to him at chinmay.026@gmail.com or on his LinkedIn profile. Also, visit Muck Rack to find out more about him.