- The Dow Jones Industrial Average (DJIA) sunk nearly 450 points on Wednesday.
- CDC Director said we are “definitely going to have a second wave” of coronavirus infections in the winter, and rolling restrictions may continue.
- Investors are slowly realizing that a quick V-shaped recovery may be impossible.
The Centers for Disease Control (CDC) issued a stark warning last night, jolting the US stock market back to reality. The Dow Jones Industrial Average (DJIA) fell nearly 2% on Wednesday.
In a SiriusXM interview, CDC Director Dr. Robert Redfield confirmed most people’s worst fears:
We’re definitely going to have a second wave.
He said that some social distancing restrictions would likely stay through the summer, and we should brace for a second peak in the winter.
No matter how vigilant we are… this virus is so infectious that I’m not sure, even in the most [inaudible] we’re going to contain it to the level we want to.
Investors are now adjusting to the painful reality that a V-shaped recovery may be impossible. Instead, a series of rolling lockdowns and restrictions will choke the economy for a year or more.
Dow Jones tumbles after strong Tuesday
U.S. stocks couldn’t hold on to Tuesday’s spectacular recovery, which was led by strong Apple iPhone sales and promising export data from China.
The Dow Jones opened to steep losses, and by the closing bell, it had fallen 445.51 points or 1.86% to 23,504.35.
The S&P 500 and Nasdaq slipped 2.2% and 1.44%, respectively. Asian and European markets also fell significantly overnight.
Coronavirus distancing until 2022?
If you thought the CDC’s warning was bad, Harvard researchers had an even more painful take. In a new report, they suggest that social distancing measures stay in place until 2022. In their view, a second wave is inevitable when the first lockdowns are eased. In the absence of a vaccine, few have had the chance to build immunity.
The social distancing was so effective that virtually no population immunity was built.
Morgan Stanley and the Federal Reserve’s Neel Kashkaria have a similar take, anticipating rolling lockdowns for 18 months. Despite President Trump’s urge to re-open the economy, the CDC’s Dr. Redfield thinks near-term restrictions will stretch into the summer.
What we need to assure between now and [the second wave] is we need the American public to stay with us in the 30 days to slow the spread of the coronavirus and stay with this mitigation. Some aspects of it are going to stay beyond that.
U.S. economy losing $25 billion every day in lockdown
Every day the U.S. remains in lockdown, the economy is taking a beating. St. Louis Federal Reserve President James Bullard predicts the U.S. is bleeding $25 billion every day in lost productivity.
In a particularly dire assessment, the International Monetary Fund (IMF) estimates the global economy will shed $9 trillion through 2021. They declared it the worst recession since the Great Depression.
Goldman Sachs jumped on the bandwagon, calculating that this recession will be four times worse than 2008.
Is the economic pain priced into the Dow Jones?
Despite the Dow’s initial 35% drop, U.S. stocks have bounced back into a technical bull market. At first glance, the stock market seems to be underestimating the possibility of more profound depression. But Goldman Sachs remains bullish, arguing that the Federal Reserve and Congress will prop up the market.
The Fed and Congress have precluded the prospect of a complete economic collapse… These policy actions mean our previous near-term downside of 2,000 is no longer likely for the S&P 500 Index.
More bearish reports, however, suggest that ‘smart money’ institutional investors are still on the sidelines, holding record levels of cash for a deeper downturn.
What to watch on the stock market today
All eyes are on the Wall Street banks as earnings season kicks off. Citigroup, Bank of America, and Goldman Sachs reported earnings before the bell this morning. And they all posted titanic declines in first-quarter profit.
JP Morgan led the season yesterday, reporting a 69% drop in profit. The bank set aside $6.8 billion in anticipation of sweeping loan defaults from customers and companies hurt by the coronavirus. The bad news was offset by a rise in revenue in its trading division.