A V shaped recovery?

As recently as yesterday, the White House Economic Adviser Larry Kudlow announced that the US economy was poised for a V shaped recovery. This narrative is in part what has driven markets upwards and sustained the rally since the March lows of this year. Without even delving into numbers but just looking at news headlines and what is happening around us it is hard to imagine how economies will vigorously rebound from the lockdowns and subsequent economic hardship.

The labor market in the US is a first sign of worry. According to the latest numbers 19.5 million people are unemployed. It is also estimated that 42% of the roughly 36 million jobs lost in the pandemic will be lost for good. That is a lot of jobs to create in a world hit by a recession and the uncertainties surrounding the virus.

Hertz, Neimann Marcus or JC Penney, these are some of the companies that have filed for bankruptcy in the last few months. With certain industries very hard hit such as aviation, retail, restauration and energy, it would not be surprising to see an acceleration in the number of bankruptcies. In addition to that, many of these hard hit sectors are laying people off in order to survive the pandemic.

Finally, the virus is not under control yet. You will no doubt have heard of the rising cases in the US, South America, Africa and India. Already some US states are rolling back lockdown measures which will put in doubt a strong acceleration of economic activity.

While a V shaped recovery seems out of the question, the upcoming corporate earnings for the second quarter will help us paint a better picture of what is to come for the global economy. Will there be more pain or some hope? Either way it could determine the market trend for the rest of the year.