The economic impact of Coronavirus is going to be terrible. The world cannot take a break and not expect profits to plummet, but everyone already knows this. Therefore, there is only one real question: What shape will the recovery take. There are only two types of possible recoveries: V-shaped, U-shaped
Many people have been speculating that once this pandemic is controlled America and the globe will return to thriving economic activity. There is a major problem with this assumption. The pandemic will not be contained. The coronavirus will require increasingly stricter measures to contain its spread. It should not be assumed that this crisis will revert to business as usual quickly. Governor Cuomo of New York, said today that he expects the crisis to continue for months. The models of the virus project that infections in already hard-hit areas like New York City and California will peak in eight weeks. Additionally, the restrictions that China put in place lasted months after the peak. If China offers any lessons we can expect these lockdowns to last longer than a few weeks but should expect it to take months. Considering these facts it is highly unlikely a quick economic recovery will occur.
A U shaped Recovery refers to a slow anemic sub-par growth over a long period. This seems highly likely. The lost decade of economic growth that Japan experienced from 1991 to 2001 will be reflective of the next few years. Even with the large fiscal policy packages that congress is passing, it will not be enough for people to immediately go back to work. Credit crunches and a whole host of unforeseeable problems will prevent this quick turnaround in economic fortunes.
Given that the economic crisis at hand will take a protracted recovery time, what should you do? Well your portfolio is going to stay low during this time. Additionally the fiscal and monetary policies that are being pushed around the world will probably manifest in high inflation rates over the next few years. On top of that, with talk of giving the lowest wage earners money instead of corporations, there will probably be a permanent pull-back in Price-to-Earnings ratio. All of these things mean that the market is still not oversold. If anything the market is still priced at a premium. Industrial companies and consumer-facing enterprises will see a long earnings slowdown for a very long time. Expect your portfolio to continue downwards for the next few months.