By Ryan Wu
In a few months, COVID-19 has effectively eliminated or stalled more than 20 million jobs created since the Great Recession. An oil crisis is playing out in the middle of one of the world’s most tumultuous economic times, and in an economy already beginning to show cracks in loan volume. Yet, the market had recovered to levels seen last year when the economy was roaring. One image summarizes the current state of American affairs: Jim Cramer of CNBC talking about market recovery while Americans go jobless.
Shouldn’t the market be lower? Usually, the market reacts to economic news and figures in a predictable manner — consumer spending goes up, and so do the markets, but markets are inherently irrational. The markets can stay irrational longer than one can stay solvent. However, in an effort to avoid a catastrophic recession, the Federal Reserve has been pumping money into the economy, “the likes of which has never been seen before.”
“The Great Repression” will be what is left after COVID-19 leaves us. The Federal Reserve has instilled investor confidence into the market and restrained fears that the market could fall further. Since COVID-19 is not a structural problem in the economy, investors are riding on the hope the economy will recover quickly from the countrywide shutdowns. Investors are positioning themselves for positive business growth rather than betting on a better economy.
Technology companies are benefiting from the closure substantially more than any other economic sector. Amazon’s AWS and Microsoft’s Azure cloud-based services are seeing a rise in spending as companies like Netflix observe a surge in users. Meanwhile, arguably one of the more critical sectors, banking, has begun to reel. Banks are watching the rise of defaults and a decrease in spending. Chase has responded by publicly announcing they are increasing the requirements for home loans in a market with favorable interest rates. Credit card companies are cutting their credit limits to de-risk, which hurts the average consumer’s credit score.
In response, the government has issued a series of stimulus bills and unemployment insurance. Companies hoping to keep customers when the economy rumbles back to life later in the year are providing assistance. Companies from utilities to banks are waiving late fees. Insurance companies are deferring payments after one contacts customer service.
Nevertheless, the “Great Repression” will leave the economy in shambles as soon as people are allowed to leave the house again. College seniors entering the workforce will face similar hardships, as did their counterparts in 2009: experience in a field more valuable. A lot of small businesses, the backbone of the economy, will disappear and along with those jobs. Those still in and beginning college are “lucky” in a way. They have time for the economy to recover. Although the market remains irrational, one behavior remains predictable that we will see after this pandemic: a rise of college enrollment.