Economic Outlook: Observations & Themes

We are living in unprecedented times. Here a few observations of our current situation:

The employment landscape looks dire. The April unemployment rate spiked to 14.7%, the highest level since October 1940. Job losses have totaled 21.4 million, wiping out all of the gains since the Great Recession. Analysts expect at least one more month of sharply rising unemployment before a slow recovery could start.

The economy could potentially recover in the second half of 2020. Some economic metrics are worse than the 2008/2009 recession. GDP declined 5% in the first quarter, and some experts expect it will fall down to 25% or more in the second. They are also predicating the possibility of a rebound in the third quarter of 10% and perhaps 5% growth in the fourth.

There could be another massive fiscal stimulus package of $1 trillion or more. Experts are expecting state and local government assistance, additional checks for individuals, targeted help for certain industries, tax breaks and more funding for unemployment insurance.

Corporate earnings remain under intense pressure. About 90% of S&P 500 companies are reporting revenues to be flat and earnings are down close to 15%

Equity valuation increases have been uneven. The 12-month forward price-to-earnings ratio for the S&P 500 rose from 14X on March 23 to 19.4X at the end of last week. This increase is contradicting the economic data.

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