Coronavirus may have sparked a recession worse than the previous financial crisis. Astonishingly, investors are betting on a quick rebound. | Image: JORGE GUERRERO / AFP
- Seventy percent of investors in a recent survey said the coronavirus recession would be worse than the 2008 financial crisis.
- But interestingly, 55% say the recession will be over within a year.
- It took the S&P 500 16 months just to reach bottom during the 2008-09 crisis. And it took over five years to fully recover.
The U.S. stock market bounce-back from the coronavirus crash has stalled over the last two weeks.
After share prices crashed faster than any time in history starting in late February, equities began to rally the last week in March. While benchmarks like the Dow Jones and S&P 500 opened higher Thursday morning, stocks are trading around the same level as they were two weeks ago on Apr 9. But investors are still licking their chops for opportunities.
A new survey by Investing.com of around 1,700 U.S.-based investors found nearly 80% believe the coronavirus market downturn is an opportunity to invest.
Some key findings from the survey:
- 77% of investors believe coronavirus is an opportunity to invest.
- Nearly 70% are holding their investments during this bear market.
- But 81% of respondents think we’re heading for a global recession.
- And over 70% believe it will be worse than in 2008.
- Still, 55% expect a full recovery within a year.
- Further, 32% said we’ll recover before the end of 2020.
These are all very bearish responses. They indicate investors believe the coronavirus market crash isn’t over.
Why Investors Believe Coronavirus Is Worse Than 2008
Why do investors see a more devastating economic downturn than 2008 ahead?
The higher job losses in a shorter period are the reason given in the report on the new survey. Jesse Cohen, senior markets analyst at Investing.com, said:
The coronavirus crisis has already cost the U.S. economy 22 million jobs and counting, far dwarfing the total number of jobs lost during the 2008 financial crisis.
Thursday morning, the latest Labor Department figures brought that total up to 26 million job losses due to coronavirus. That wiped out all the job gains made by the U.S. economy since the 2008 Great Recession, and then some 4 million more. The staggering figure also dwarfs the 8.7 million unemployment claims made during the Great Recession.
Other indicators threatening a coronavirus recession worse than 2008 include unprecedented oil price deflation, screaming recession warnings from U.S. Treasury bond yields, and corporate earnings in free fall due to coronavirus. These bearish indicators raise questions about the curiously short time frame investors in the survey gave for a recovery.
When Will The Economy Recover From Coronavirus?
Note the date stamp on this tweet. Euro Pacific Capital President Peter Schiff predicted a major recession in 2020. The coronavirus pandemic made it worse. | Source: Twitter
Despite the severity of the coronavirus downturn, a majority of investors see a recovery within a year in the Investing.com survey. Further, Wall Street investors like BlackRock and Goldman Sachs say the stock market bottom is near. Goldman projects an S&P 500 Index level of 3000 (+8%) by year-end. These bullish sentiments cannot be ignored or trivialized.
The rosy outlook expects the coronavirus recession to be something like a “flash crash.” Although swift and severe, it will be over quickly. This thesis attributes the recession to the coronavirus and sees the economy as resilient and resourceful enough to bounce back significantly when the pandemic is over. The stunning pace of technological progress since 2008 lends credence to this macro thesis. So does the remarkable work ethic of the American people.
It Took Over Five Years to Recover from 2008 Recession
But many economists disagree and expect the coronavirus downturn to rival the Great Depression in magnitude. If the economy were to recover as soon as these bullish forecasts, it would be nothing short of miraculous.
In the 2008-09 financial crisis, it took 16 months for the S&P 500 Index just to hit bottom. The stock market benchmarked peaked on Oct 9, 2007, and capitulated for nearly a year and a half until Mar 6, 2009.
Then it took another four years for the stock market to recover and retest the S&P 500’s October 2009 levels. So when investors say the coronavirus recession will be worse than the 2008 financial crisis but say it will be over by year’s end, it doesn’t take a degree in economics to leave anyone scratching their head. Here’s why these bullish projections are wrong:
This is not a coronavirus recession as the bullish recovery thesis sees it. The pandemic was merely the catalyst for a broad market correction that many analysts warned was coming before “Wuhan” had become a household word. And coronavirus was also fuel for the fire, exacerbating and accelerating the economic damage.
But the equities glass was already half full of froth going into 2020. Now the market will reckon with epically overbought stock valuations, way out of sync with GDP and earnings. Indeed, stocks rallied euphorically throughout 2019 as S&P 500 profits spent the entire year in an earnings recession. Don’t hold your breath, waiting for a recovery.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered investment advice from CCN.com. The author holds no investment position in the S&P 500 at the time of writing.
This article was edited by Sam Bourgi.