Though it’s too early to label the rapid bounce off market lows from March 23 a recovery, it has been one heck of a rebound. From the March 23 low of 2,237, the S&P 500 has gained 32% as of May 26. The index still has close to 15% to go before we break the February level of 3,386, but at least it has been heading generally in the right direction. The question is always, of course, “What’s next?”
As I seek to answer that, I’m watching how four key themes play out.
Infection and recovery rates
We all want infection rates to decline, recoveries to speed up and a vaccine to be created. It appears to me we’re making progress on all those fronts. But there still seems to be a gulf between what we want to believe (we’re almost done with this disaster) and the actual data. Though the pandemic might not be as bad as originally feared, there is still the possibility of a dramatic second wave swelling up in the middle of flu season. Fingers crossed it doesn’t.
Uncle Sam, we need you
When the country called a generation to arms in 1941, our ancestors did not hesitate. Now, it’s Uncle Sam’s turn to rescue us. The Federal Reserve took unprecedented steps to shore up the economy during the Great Recession and has gone even further this time around. Likewise, the President, Congress and state governments have shoveled money into the economy as if it was going out of style.
I hope that continues. Small businesses are being decimated. Many will not come back, nor will the old jobs associated with them. The government should take all steps necessary to ensure first, people are fed and housed and, second, our economy is liquid enough to resume our tradition of innovation and growth. This is not, in my opinion, the right time to worry about taking on new debt. Happily, Uncle Sam acted quickly this time around. The question is whether our leaders have the political will to continue to stimulate the economy as long as necessary.
Unemployment
The measure of how well the government’s actions are working is unemployment. The difference between a V-shaped recovery and a prolonged, painful one will be how quickly the nation gets back to work. I understand how urgently Congress and states needed to put cash in the pockets of American households, but now they need to re-incentivize Americans to go back to work as jobs become available. I’m a big fan of a huge infrastructure bill. Let’s fix the nation’s roads, bridges and airports while providing jobs at the same time.
Last, there needs to be an end
America does not want a centrally planned economy forever. Free markets brought us growth and prosperity. The measures taken to buffer our economy must be temporary, though nervous Nellies might want them to continue indefinitely. A safety net is good, but we must also begin to take those risks that have built the American dream. When the time comes, we must all wean ourselves off unlimited government intervention, put our proverbial hard hats back on and go to work.