2<\/sup><\/p>\n\n\n\n_________________________________________________________________________<\/p>\n\n\n\n
1 – Unemployment Figures Do Not Paint a Complete Picture<\/strong><\/p>\n\n\n\nThe U.S. economy is losing millions of jobs \u2013 there is no\nsugar coating this fact. But if we take a very close look at the job losses\nacross the economy, we find that a large percentage are furloughs (temporary\nlayoffs) as opposed to permanently shrinking the workforce (data below):<\/p>\n\n\n\n Source: Zacks Investment Research3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\nIn the current environment, employers appear to be keeping\nemployees close by, in anticipation of the economy\u2019s reopening. A recent survey\nconducted by Morning Consult found that two-thirds of workers believed that\nthey would return to work for their current employer, which could help restart\nbusiness much more quickly than if the employer had to rehire.\n4<\/sup> When employees are asked to\nreturn to work, there\u2019s no need for training, recruitment, job search,\nbackground checks, \u2018onboarding,\u2019 etc., all of which are costly and\ntime-consuming. Workers can return to their jobs and immediately be productive.\n<\/p>\n\n\n\nAdditionally, more than half of job\nlosses have come from hospitality, accommodation, food services, retail trade\nand other service-sector jobs. Those who can work remotely \u2013 typically in\nhigh-skilled, higher-income jobs in tech, finance, management, professional\nservices \u2013 saw a much smaller change to payrolls in March and April. The\nimplication here, in my view, is that the majority of layoffs come from industries\nthat could resume operations immediately when lockdowns and restrictions are\nlifted \u2013 which is beginning to happen now.<\/p>\n\n\n\n
Jobs disappeared during the Great\nDepression because there was no demand, no capital, no functioning Federal\nReserve or financial system. Companies had to permanently restructure \u2013 or\ndeclare bankruptcy \u2013 in droves. There was no safety net during the Great\nDepression.<\/p>\n\n\n\n
Today, businesses are struggling in major ways, but they are also receiving financial support from the government with payroll loans that are in many cases forgivable, and workers across many industries are seeing close to full replacement of income from unemployment insurance under the CARES Act.5<\/sup> This is not a Depression-like outcome.<\/p>\n\n\n\n2 – Event-Driven Shock Versus a Structural\/Financial Crisis<\/strong><\/p>\n\n\n\nThe collapse of the financial system was one of the major\ncauses of the Great Depression. Today, banks are very well capitalized and the\ncredit markets remain stable. Comparing the financial system during the Great\nDepression to the financial system today is essentially comparing night to day.<\/p>\n\n\n\n
Because the causes of the Great Depression were structural, industrial\nproduction fell by more than half during the entirety of the 1930\u2019s. Back then,\nindustrial production was a critical component of the economy. Production\ntrickled higher over a four-year stretch during the mid-1930\u2019s, only to plummet\nsharply again in 1937-1938. 6<\/sup> Again, the Great Depression was a\nlong, grinding decline.The current lapse in production and services\nis expected to last a few quarters \u2013 not years.<\/p>\n\n\n\nHistorically, \u201cevent-driven\u201d bear markets (which is how I\nwould characterize the current downturn) have been shorter, less severe, and\ntake less time to recover from than structural or cyclical downturns. I do not\nbelieve this time will be different.<\/p>\n\n\n\n Source: Goldman Sachs7\ufeff<\/sup><\/em> <\/figcaption><\/figure>\n\n\n\n3 – Policy Mistakes Drove the Great Depression Deeper<\/strong><\/p>\n\n\n\nGovernments and central banks failed miserably in their\nresponse to the Great Depression, doing basically the opposite of what needed\nto be done. <\/p>\n\n\n\n
In the midst of the 1930\u2019s downturn, central banks tightened\nmonetary policy in order to maintain the gold standard, resulting in severe\ndeflation which raised the cost of debt and lowered real incomes. The U.S.\ngovernment equally fumbled the response by putting austerity measures in place\n(cutting spending) just as the economy needed it most. The government also\npassed the Smoot-Hawley Tariff Act in 1930 in an effort to help domestic\nproducers, but it only resulted in more pain due to the loss of global demand.<\/p>\n\n\n\n
The policy response in the current crisis has drawn from\nlessons learned during the Great Depression, and the government and central\nbank are essentially doing the opposite of what they did during the Depression.\nThe U.S. government has spent some $2.9 trillion in stimulus to boost the\neconomy, and the Federal Reserve slashed rates to the zero bound in addition to\noffering basically unlimited liquidity to the capital markets.8<\/sup> The\ndifference in responses is night and day. <\/p>\n\n\n\nBottom Line for\nInvestors<\/strong><\/p>\n\n\n\nI strongly believe the current recession will be shorter,\nless painful, and will inflict far less damage on households and businesses\nthan the Great Depression. But that\u2019s not to say it will be an easy and\npainless downturn. All recessions hurt the economy and society at-large, and it\nwill take time to rebuild. <\/p>\n\n\n\n
In my view, however, getting the economy back to a strong\nposition may require about 15-18 months, versus the 10+ years that were needed\nto recover from the Depression. There\u2019s no comparison, in my view.<\/p>\n\n\n\n
Instead of letting fearful headlines influence your investment decisions, I recommend staying focused on the fundamentals and the long-term view during this recession. To help you do this, I am offering all readers our\u00a0Just-Released June 2020 Stock Market Outlook Report.\u00a0<\/a><\/strong>Top four\n“stay-at-home” sectors at play<\/em><\/li>What stocks would\ncome to life with a vaccine?<\/em><\/li>Top stocks in top\nindustries<\/em><\/li>Global outlook\nand job market<\/em><\/li>What of consumer\nconfidence?<\/em><\/li>U.S. return\nexpectations for 2020 <\/em><\/li>Is it time to buy\nstocks in May?<\/em><\/li>And much more.<\/em><\/li><\/ul>\n\n\n\nIf you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!9<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"Mitch examines three factors that will influence the severity and length of this downturn<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8648","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8648","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8648"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8648\/revisions"}],"predecessor-version":[{"id":10605,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8648\/revisions\/10605"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8648"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8648"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8648"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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