A Wall Street trader for the reopening of the dealing room on May 26, 2020. – Mark Lennihan / AP / SIPA
Two rooms, two atmospheres. While the United States officially entered a recession in February, according to a reference committee announced on Monday, Wall Street continued its rally, the Nasdaq regaining its levels before the coronavirus crisis, and the indices Dow Jones and S&P 500 are not far away. It remains to be seen whether the hope of an economic recovery as rapid as the fall will continue once the end of public aid reveals the real impact of containment on SMEs.
“The peak of monthly economic activity occurred in the US economy in February 2020,” said the National Business Research Bureau’s Business Cycle Dating Committee. “This peak marks the end of the expansion that started in June 2009 and the start of a recession,” he added. The growth will thus have lasted 128 months, or almost 11 years.
Given the brutality of the economic shock, this independent body has even revised its definition.
Traditionally, a recession has meant a decline in gross domestic product (GDP) for at least two consecutive quarters. But, the committee “concluded that the unprecedented magnitude of the decline in employment and production, and its extent throughout the economy, deserve to present this episode as a recession, even if it were to happen.” prove to be shorter than previous contractions ”.
Losses erased on Wall Street
Regardless of unemployment at a still very high level and indicators at half mast, Wall Street traders welcome the gradual reopening of the economy and pushed the Nasdaq to record levels on Monday. The highly technological index rose 1.13% to 9.924.75 points, wiping out all losses caused by the pandemic: its previous record was dated February 19. The Dow Jones Industrial Average, the leading Wall Street index, meanwhile gained 1.70% to close at 27,572.44 points. The S&P 500, which represents the 500 largest companies on Wall Street, gained 1.20% to 3,232.39 points, occasionally returning to its level at the start of the year.
They have all risen more than 40% since mid-March, when the indices fell sharply in the face of the sudden advance of the Covid-19 in the country. “The equity market is soaring because investors believe that we are at the start of a new economic cycle, that the recession has made growth start again” as it was beating a bit before the pandemic, says Maris Ogg, portfolio manager for Tower Bridge Advisors.
Hopes of employment figures better than expected
The world’s largest economy showed some signs of recovery in May thanks to the partial reopening of part of the federal states. The economy has also benefited from a vast state support plan which has granted $ 3 trillion in aid to businesses and individuals. Thousands of billions of additional dollars have also been injected in the form of cash provided by the United States Central Bank.
Outsourcing forecasts, the unemployment rate fell to 13.3% in May, when the most pessimistic analysts saw it approaching 20%. And 2.5 million jobs were created, compared to 8.5 million destroyed jobs expected.
The Fed cautious
For the White House, no doubt, this unexpected rebound is due to the resumption of economic activity, which President Donald Trump has been demanding for long weeks, and which began in May in certain states. The Trump administration is also convinced that the rebound at the end of the year will be particularly sustained. In mid-May, Fed chairman Jerome Powell was much more cautious, arguing that more budget aid would likely be needed to support a recovery.
He then considered probable a peak at 20 or 25% of the unemployment rate, and a fall of 20 or 30% of the GDP in the second quarter. The head of the Federal Reserve is eagerly awaited Wednesday when he speaks at the end of the monetary committee meeting. The Fed’s economic outlook survey, released in late May, had brought to light “very uncertain” prospects. The companies in the country questioned were then mostly “pessimistic about the potential rate of recovery”.
On the household side, consumer confidence certainly improved slightly in May, according to the University of Michigan bi-monthly survey. But for the time being, they have not yet accelerated their non-essential expenses, which are essential to restart the economy in the long term.
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