America may be risking a "double-dip" recession by reopening too quickly, analyst warns. Investors' anxiety led Dow futures lower in overnight trading.
U.S. stock futures moved lower in overnight trading Monday, as investors anxiously monitored the gradual lifting of lockdown restrictions that have been in place since March.
Many are welcoming the reopening of America, while others are concerned that a ‘too-hasty’ approach could have severe ramifications for public health and the economy.
Futures prices on all three major U.S. indexes traded lower Monday evening. The Dow Jones futures contract declined 162 points before paring losses. It was last down 110 points or 0.5%. S&P 500 futures slumped 0.5%. Nasdaq 100 contracts were off 0.2%.
The Dow slumped 109 points in New York, while the broader S&P 500 reversed gains in the final moments of trading as investors continued to monitor the spread of Covid-19.
The global caseload is fast-approaching 4.2 million, with nearly 286,000 deaths reported. America’s caseload is over 1.3 million, according to Johns Hopkins University.
Markets have rallied in recent weeks on hopes that the U.S. economy would soon reopen–ending months of lockdown that has displaced tens of millions of workers.
But not everyone believes ending the lockdown is a good idea, as it runs the risk of reigniting another wave of the pandemic.
Rather than the ‘V-shaped’ or ‘U-shaped’ recovery that many economists are hoping for, reopening too quickly could lead to a “W-shaped disaster.” That’s the view Harvey Kennedy School professor Jeffrey Frankel.
The push to reopen the economy is making a W-shaped recovery very much more likely.
A ‘W-shaped’ path entails a double-dip recession where the economy recovers momentarily before plunging again.
Frankel’s view is shared by Washington University economist and Federal Reserve research fellow Yongseok Shin.
Shin told Yahoo:
People will then hunker down for fear of infection, and local governments will re-impose lockdowns, quashing any economic recovery we will have had to that point.
Federal Reserve Chair Jerome Powell said last month, “We’ll see economic data in Q2 that’s ‘worse than any data we’ve seen'”:
A double-dip recession would be disastrous for an economy that is projected to contract by nearly 35% in the second quarter. But extending the lockdown could be equally daunting as millions of businesses run the risk of closing permanently.
A recent survey from the Society for Human Resource Management found 52% of companies expect to be out of business within six months.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
Last modified: September 23, 2020 1:55 PM