Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Stocks Are Celebrating. But This Recession Might Make 2008-2009 Look Mild

By Michael KramerMarket OverviewJun 19, 2020 09:22AM ET
www.investing.com/analysis/stocks-are-celebrating-but-this-recession-might-make-20082009-look-mild-200528210
Stocks Are Celebrating. But This Recession Might Make 2008-2009 Look Mild
By Michael Kramer   |  Jun 19, 2020 09:22AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

This post was written exclusively for Investing.com

The stock market has raced to record highs in 2020, fueled by investor euphoria over the potential bounce-back in the economy as the US reopens. Despite this optimism, the US economy finds itself in a rather tight spot, with data that shows improvement, but that in reality is only bringing us back to where the economy was in the depths of the Great Recession of 2008 and 2009.

And that ended up taking stocks, and the economy, a reasonably long time to recover. To put it in perspective, from the time it hit 13-lows in March 2009, It took the S&P 500 another four years to rally back to where it had been trading prior to the onset of the financial crisis.

Even the Federal Reserve maintains a gloomy outlook for the economy, pledging to keep rates near zero for the foreseeable future. Worse, inflation metrics are falling, and that is likely to send yields on the 10-year Treasury lower over time, potentially even towards 0% as well .

At some point, the absence of inflation, meaningful economic growth, and lower rates may spook stocks, which is not all that different from what we witnessed in March, when yields tumbled, dragging stocks along with them.

Fed Issues Weak Outlook

At the latest FOMC meeting, the Fed projected GDP would contract by 6.5% in 2020, and then rebound by 5% in 2021 and 3.5% in 2022. This suggests the central bank does not expect the economy to get back to where it was in 2019 until some time in mid- to late-2022. That would imply an even steeper deterioration in GDP than in 2008, but, based on the Fed’s projections, a slightly faster recovery.

Real US GDP - St Louis Federal Reserve
Real US GDP - St Louis Federal Reserve

The macro data also shows the current recession caused by the pandemic has been significantly worse than that of 2008-09, and that the economy is just now getting back where it was before the downturn. Retail sales in May showed a giant month-over-month gain of about 17.7%. However, on a year-on-year basis, those numbers were significantly worse than the monthly print, falling by more than 6%, which is on par with some of the worst readings recorded in 2008-09. Meanwhile, other data points, like industrial production have fallen dramatically as well, and saw almost no meaningful bounce in May.

US Industrial Production - St Louis Federal Reserve
US Industrial Production - St Louis Federal Reserve

Some of the unemployment data has been even worse, with the latest reports showing continuing claims have remained around 20.5 million for the past four weeks, about three times greater than at the depths of the last recession. The big bump up in May employment may have been overstated as well, with about 4.9 million workers having been misclassified. Without the misclassification, May's non-farm payrolls would have registered a rise in the number of unemployed to 25.4, compared with the reported 20.4 million, which, in turn, would have increased the unemployment rate to 16.1%, versus the reported 13%.

Meanwhile, critical inflation readings such as the consumer price index, producer price index, and even the trimmed mean PCE readings have fallen to some of their weakest levels in years. With low inflation and an economy that is in its worst recession in living memory, on par at least with that of 2009, if not worse, there may be a significant drag lower on interest rates over time, should these economic conditions not improve soon.

The technical chart shows that a drop in the 10-year Treasury rate below approximately 55 bps could result in a steeper decline, potentially back to the March lows at 40 bps, or even lower, should market participants begin to take the view that we may be in for a much longer, and drawn-out recovery. Such a decline could result in equities being dragged lower, as investors grapple with a slower return "to normal" than expected.

Hourly US 10-Year Treasury Yield
Hourly US 10-Year Treasury Yield

At the moment, the stock market is in celebratory mode over the prospects for recovery, aided by an unprecedented wave of government and central-bank stimulus. The biggest problem is that this recovery is, at best, is getting us back to levels that were once consiedered dire enough to call the downturn of 2008 and 2009 "The Great Recession."

It doesn’t seem like much to celebrate at this point.

Stocks Are Celebrating. But This Recession Might Make 2008-2009 Look Mild
 

Related Articles

Stocks Are Celebrating. But This Recession Might Make 2008-2009 Look Mild

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (49)
Jose Emenis
Jose Emenis Jun 22, 2020 8:58AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Boeing will soar to $600 per share if Trump gives them another $750 billion taxpayer dollars...
John Economou
John Economou Jun 21, 2020 8:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The market as a whole is way overbought. With all o the economic indicators pointing a disaster, all you have to do is ask yourself one question? Will the fed continue to have your back? The fed is the single reason this market is retesting highs. We are dealing with a morally bankrupt president who will have no qualms with increasing the deficit to 30 trillion. Just look at his past. It tells the whole story.  Will this market continue higher? Yes, at least until Oct/Nov. After that, the party is over no matter who wins.
John Economou
John Economou Jun 21, 2020 8:44PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The market as a whole is way overbought. With all o the economic indicators pointing a disaster, all you have to do is ask yourself one question? Will the fed continue to have your back? The fed is the single reason this market is retesting highs. We are dealing with a morally bankrupt president who will have no qualms with increasing the deficit to 30 trillion. Just look at his past. It tells the whole story.  Will this market continue higher? Yes, at least until Oct/Nov. After that, the party is over no matter who wins.
John Harris
John Harris Jun 21, 2020 1:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Michael, you seem to be incredibly knowledgeable. If you could quantify your knowledge on a daily basis (e.g. give near and mid-term support and resistance for SPY & QQQ), you would be the top analyst at https://investing.com and get more followers than anyone else. Heck, I'd even pay for a subscription from you. You seem to understand what is happening on Wall Street and Main Street, so please provide your followers some consistent quantifiable daily guidance for SPY and QQQ.
Tom Jones
Tom Jones Jun 21, 2020 12:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If you want the market to tank, Biden beating Trump in the polls will accelerate the move. Sorry, but the Dems are so divided that they couldn’t put up a candidate other than a nearly senile Biden. He can barely enunciate his words and can’t gather together a complete coherent thought. A vote for Biden is simply a vote against Trump, and that’s what the Dems are counting on. Biden’s VP choice will be critical, as it’s highly likely Biden will need a LOT of help in making decisions.
Jeremy Williams
Jeremy Williams Jun 21, 2020 12:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
But you would rather have a racist communist that likes little girls like trump?
Tom Jones
Tom Jones Jun 21, 2020 12:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lets face it, for a country as great as the US, it’s truly incredible that these two are our choices. We can debate endlessly on which is worse in various verticals, but in reality no Pres would (or ever will) make everyone happy. None.
Vv Pp
Vv Pp Jun 21, 2020 12:27PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
maybe this is the best comment I have ever read this year
Tom Jones
Tom Jones Jun 21, 2020 12:16PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I think you’re going to be proven correct, but timing a correction is impossible despite the data you cite. In ‘09 recession, money center banks were the cause, but this time not, which makes a HUGE difference in the mindset of the market because they can still lend, plus the Fed is backstopping risky assets. Also, by charter an equity portfolio manager has to keep a huge % of their assets in equities, which is why tech/biotech will continue to outperform, as unlike during the tech bubble, tech cos w huge cash warchests are part the solution despite political posturing threatening to regulate them. Other sectors, incl utilities (decreased indus prod) andcretail (after $600/wk goes away) will tread water or worse. Ex: Even a 9% higher crude price last week couldn’t prevent energy from underperforming cuz a worldwide covid-induced recession will vastly decrease energy demand.
Irvin Mermelstein
Irvin Mermelstein Jun 21, 2020 2:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This market lacks the fundamentals of the market in February 2009, at the bottom. On 2/27/09, the S&P 500 closed at 734.09. We didn't have a pandemic or 20% unemployment or Trump.
Ha Has
Ha Has Jun 20, 2020 6:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Very pessimistic. Read his previous articles. All his predictions are wrong. He said there would be no rally after the crash. With amount of the articles he writes, it's clear it's a job he does for cash, and that's why all his titles are phrased to act like click-bait. Don't believe him.
Edward Chong
Edward Chong Jun 20, 2020 6:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
i rather believe him.
John Harris
John Harris Jun 20, 2020 6:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I'm confused. What click bait? Michael seems to be a very nice person providing valuable insights. Personally, I would pay him for his valuable advice which he is giving for free
gary ryan
gary ryan Jun 20, 2020 6:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yea same, reads like an objective view using current economic, gonzo and past data with, basis pionts as references, which means everyone can review the data from same place for there own interpretation.
Suryakant Savalikar
Suryakant Savalikar Jun 20, 2020 2:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sir, your prediction about the present market and in coming min. one and half year doesn't bounce back the level before the CORONAVIRUS impact, for recovery of 3 months hamper in all economic activities may require 2/3 years too I think, #Now the Stock market created a artificial # BUBBLE# once it Burst comes to bottom levels, range bound some time that levels (sideways) then recovery starts in up and down cycling manner. I appreciate your prediction with great respect.
William Goodman
William Goodman Jun 20, 2020 1:59PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You have look at the cause of the recession and the anticipated changes coming out of it before making an ignorant statement like Kramer makes. No need to follow this type of journalism.
ZaZ LEE
ZaZ LEE Jun 20, 2020 12:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Wrong. stocks related RUSSELL 2000, including restaurants, Reits, morgatges, Department stores are still very low. I mean it.
Plopseven Schwartz
Plopseven Schwartz Jun 20, 2020 12:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That’s because none of them will survive a second lockdown and that’s where we are headed.
Tom Jones
Tom Jones Jun 20, 2020 12:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
When will be the next time you fly, eat at an indoor-only restaurant or go to the movies unless you’re forced to due to job, death in family, etc. Right, all these stocks will remain depressed, with occasional blips up based on some newsflow.
gary ryan
gary ryan Jun 20, 2020 12:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
but the first lock down clearly hasnt worked for U.S what will a second achieve? well obviously the desired economic disaster some politician's seem to want... large scaled gatherings protests riots worldwide....ehm lock down or clear the streets and put officers of the law on public trial while restructuring law agencies, then back to everyday life and hope the vaccine is a good one....
Paul Searle
Paul Searle Jun 20, 2020 11:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So I read the article and ALL the comments.It seems to come down to this, will COVID ******back? And if so how hard?Those that think it won't trash the article and say nothing to see hereThose that think it will are saying the sky is falling and say good articleThe facts are what the facts are it is interesting how so many people can come up with such wide ranging opinion based on the same set of facts
Alan Rice
Alan Rice Jun 20, 2020 11:03AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The sky IS falling. ( See the diversity of American thought.)
Navin Jayan
Navin Jayan Jun 20, 2020 6:43AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
With all due respect, these guys are content generators. They are paid to write and give us something to read.....as far as I know I am glad to have learned not to take any of these 'articles' to heart.  Just invest in what is already severely undervalued, and accumulate as you go, if it goes lower, buy more. Make sure these companies you are investing in have a very low risk to fail/go bankrupt. The 2008 crisis taught us that some companies will never go down.  Selling just because these content writers say we might be getting a great depression or whatever is the dumbest thing you can do.
gary ryan
gary ryan Jun 20, 2020 6:43AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
this guy seems to give an objective view....compared to anything else over the covid episode
mighty MGTOW
mighty MGTOW Jun 19, 2020 8:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Your article helped me reassess my shorts this morning. Im glad i decided to hold.Thanks!
jitu kalra
jitu kalra Jun 19, 2020 5:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how much trillions more can fed induce into market to afloat ?
Plopseven Schwartz
Plopseven Schwartz Jun 19, 2020 5:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Enough to crash the dollar
Alan Rice
Alan Rice Jun 19, 2020 3:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Is THIS the BEGINNING of an ECO Revolution ??Hopefully.
Shahid Ahmed
Shahid Ahmed Jun 19, 2020 2:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I appreciate the true and fair analysis. Thanks dear
Sharath K S
Sharath K S Jun 19, 2020 12:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
very nice article. when do you think the reality will be reflected in market?
Rock Man
Rock Man Jun 19, 2020 12:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
After the election. either way good bye bulls
Nk bag holder
Nk bag holder Jun 19, 2020 12:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the truth will surface by itself in near future. Changing of fact/Stat to look eye appealing do not help in the real situation.
Abhishek Bal
Abhishek Bal Jun 19, 2020 12:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Rock Man   Yes. You are right. The Joker will keep this bubble afloat by hook or crook till November. And simply after that he won't care for.
Tom Jones
Tom Jones Jun 19, 2020 12:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Rock Man If Biden is winning in the polls, the market will tank long before the election. But consider the fact that if T loses he will likely contest the election (for whatever crazy reason; ego, rigged voting, etc) and actually refuse to vacate the WH until the Supreme Court decides if his case has merit. It is unrealistic to believe T will play ANYTHING by the rules and honor the American voting process.
Matt Novakovich
Matt Novakovich Jun 19, 2020 12:49PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
curious, am I the only one who just enjoys the trolling comments and none of the articles that the investing .co writers puke out?
Kamaljeet Singh
Kamaljeet Singh Jun 19, 2020 12:47PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what we are witnessing now is distribution, how long it continues, god knows
Kamaljeet Singh
Kamaljeet Singh Jun 19, 2020 12:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
very true article, time to rap up all longs n create short positions for long run. 👍
Tom Jones
Tom Jones Jun 19, 2020 12:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Really? Nice idea, but I am willing to bet you are not doing this at the moment for the same reason that everyone else isn’t. You could potentially lose a LOT of $ before your thesis works, and by the time it does, the market might sink back to just 5% lower than it is today. It’s not worth the pain you might have to endure befire you can claim “I told you the market would tank”.
ja mes
ja mes Jun 19, 2020 12:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what about the national debt and deficit? are they completely irrelevant? they have never been higher under any previous president. especially the deficit, Obama had reduced it and Trump has it back to levels of bush.
Jason Hogue
Jason Hogue Jun 19, 2020 12:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Get your facts right, 5 trillion add'l under Bush, 10 trillion add'l under Obama, and 7 Trillion in the last 4 years. Get your nose out of Obamas rear
Paul Searle
Paul Searle Jun 19, 2020 12:40PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
to be clear those numbers are over 8 years for both W and BO and 3.5 for the incumbent correct?
Billy Wood
Billy Wood Jun 19, 2020 10:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Everyone has an opinion. This guy's is just wrong.
jack blackstone
jack blackstone Jun 19, 2020 10:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
who pays you for your analysis?  who do you write for?
Vv Pp
Vv Pp Jun 19, 2020 10:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
says who? Mr. Nobody Billy? lol
Tom Jones
Tom Jones Jun 19, 2020 9:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Naysayer opinions like this have prevented me from making as much in this rally as I should have. Even if we get a 15% correction, I would still be way up if I hadn’t tried hedging everything cuz of fears about all the things you’ve discussed. I’ve been watching too much CNBC. I’m guessing you’ve missed a lot of the upside, too.
Billy Wood
Billy Wood Jun 19, 2020 9:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Don't listen to them. Every *******with a keyboard has an opinion and the vast majority are wrong. Make a plan, stick to the plan no matter what, and ignore the mindless fools crying wolf.
Vv Pp
Vv Pp Jun 19, 2020 9:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Billy Wood says Mr. Nobody Billy again
Mandeep gulati
Mandeep gulati Jun 19, 2020 9:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
if by September Trump numbers don't improve market will tank anyways. if he wins market will keep climbing because he will keep printing money to boost stocks
Nick Gollwitzer
Nick Gollwitzer Jun 19, 2020 9:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Trump gonna win by a landslide anyways
Sridhar N Rao
Sridhar N Rao Jun 19, 2020 9:24AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Whether Trump wins or loses, post September, the markets will go down pretty fast! I may be right or wrong, but I don't care, I am not invested in stocks but just government bonds, gold and FDs! And a little % in ETFs that would surely recover over the next few years - whoever wins or loses!
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email