June 1, 2020
Thanks to COVID-19, there is a huge disconnect between Wall Street and Main Street…again.
Despite what’s happening all over the country in terms of unemployment and a general lull in economic activity, the S&P 500 isn’t far off from its all-time high.
That’s despite first quarter gross domestic product being down 4.8 percent, which is the largest quarterly decline since 2008.
But wait, the second quarter GDP will be much worse. Estimates are calling for a roughly 30-40 percent year-over-year drop. The Federal Reserve Bank of Atlanta’s GDPNow model pegs it at a 41.9 percent drop (as of this writing).
More than half of small businesses recently reported they had enough resources to hang on for another 1-3 months. It’s no wonder we’re starting to see a wave of bankruptcy filings. And we’re talking huge corporate names.
So far, we’ve had J Crew, Neiman Marcus, JC Penney, and Hertz file for bankruptcy, with more firms sure to follow. In fact, filings rose 18 percent in March alone, compared to 2019.
Even with all the federal stimulus, we still likely haven’t seen the worst yet. How can a retailer or restaurant survive by serving only a quarter of its capacity – if they’re allowed to open at all? What business model can withstand a 75 percent reduction in customers?
Yet, the equities rebound continues. Positive, yet speculative, news on a COVID-19 vaccine shoots markets upwards. While that is certainly good news, each instance of possible positivity seems to push markets up a few percent.
Main Street is not experiencing these bumps. And if that continues, things will get worse before they get better.