Stocks Are Celebrating. But This Recession Might Make 2008-2009 Look Mild

Stocks Are Celebrating. But This Recession Might Make 2008-2009 Look Mild

Michael Kramer  | Jun 19, 2020 02:28

This post was written exclusively for

The stock market has raced to record highs in 2020, fueled by investor euphoria over the potential bounce-back in the economy as the US reopens. Despite this optimism, the US economy finds itself in a rather tight spot, with data that shows improvement, but that in reality is only bringing us back to where the economy was in the depths of the Great Recession of 2008 and 2009.

And that ended up taking stocks, and the economy, a reasonably long time to recover. To put it in perspective, from the time it hit 13-lows in March 2009, It took the S&P 500 another four years to rally back to where it had been trading prior to the onset of the financial crisis.

Even the Federal Reserve maintains a gloomy outlook for the economy, pledging to keep rates near zero for the foreseeable future. Worse, inflation metrics are falling, and that is likely to send yields on the 10-year Treasury lower over time, potentially even towards 0% as well .

At some point, the absence of inflation, meaningful economic growth, and lower rates may spook stocks, which is not all that different from what we witnessed in March, when yields tumbled, dragging stocks along with them.

Fed Issues Weak Outlook

At the latest FOMC meeting, the Fed projected GDP would contract by 6.5% in 2020, and then rebound by 5% in 2021 and 3.5% in 2022. This suggests the central bank does not expect the economy to get back to where it was in 2019 until some time in mid- to late-2022. That would imply an even steeper deterioration in GDP than in 2008, but, based on the Fed’s projections, a slightly faster recovery.

Real US GDP - St Louis Federal Reserve

The macro data also shows the current recession caused by the pandemic has been significantly worse than that of 2008-09, and that the economy is just now getting back where it was before the downturn. Retail sales in May showed a giant month-over-month gain of about 17.7%. However, on a year-on-year basis, those numbers were significantly worse than the monthly print, falling by more than 6%, which is on par with some of the worst readings recorded in 2008-09. Meanwhile, other data points, like industrial production have fallen dramatically as well, and saw almost no meaningful bounce in May.

US Industrial Production - St Louis Federal Reserve

Some of the unemployment data has been even worse, with the latest reports showing continuing claims have remained around 20.5 million for the past four weeks, about three times greater than at the depths of the last recession. The big bump up in May employment may have been overstated as well, with about 4.9 million workers having been misclassified. Without the misclassification, May's non-farm payrolls would have registered a rise in the number of unemployed to 25.4, compared with the reported 20.4 million, which, in turn, would have increased the unemployment rate to 16.1%, versus the reported 13%.

Meanwhile, critical inflation readings such as the consumer price index, producer price index, and even the trimmed mean PCE readings have fallen to some of their weakest levels in years. With low inflation and an economy that is in its worst recession in living memory, on par at least with that of 2009, if not worse, there may be a significant drag lower on interest rates over time, should these economic conditions not improve soon.

The technical chart shows that a drop in the 10-year Treasury rate below approximately 55 bps could result in a steeper decline, potentially back to the March lows at 40 bps, or even lower, should market participants begin to take the view that we may be in for a much longer, and drawn-out recovery. Such a decline could result in equities being dragged lower, as investors grapple with a slower return "to normal" than expected.

Hourly US 10-Year Treasury Yield

At the moment, the stock market is in celebratory mode over the prospects for recovery, aided by an unprecedented wave of government and central-bank stimulus. The biggest problem is that this recovery is, at best, is getting us back to levels that were once consiedered dire enough to call the downturn of 2008 and 2009 "The Great Recession."

It doesn’t seem like much to celebrate at this point.

Michael Kramer

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Dan German
Dan German

You make sense. Its the market that doesnt.   ... (Read More)

Jun 21, 2020 14:37 GMT· 1 · Reply
Ed Crain
Ed Crain

Excellent!!!  ... (Read More)

Jun 20, 2020 06:32 GMT· Reply
Robert Botnick
Robert Botnick

Michael, you are right but a few months early. If people cannot get back to work this summer they eill start to cash in their 401k’s. At that point the stock markets will tank as “forced selling” takes hold.   ... (Read More)

Jun 19, 2020 21:39 GMT· 1 · Reply
Alice Gong
Alice Gong

Well tell that to AAPL...  ... (Read More)

Jun 19, 2020 12:50 GMT· Reply
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors. is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.