May 6, 2020
Normalization: Most expect the path for the SPX is largely incumbent on the speed of the economic normalization process. But the speed is probably less important than the linearity with concern over the reemergence of community spread and a possible reinstitution of lockdown measures by region. At the moment, there’s no strong correlation between infection rates in states with increased mobility and higher than average population density but this will be the thing people watch in the days/weeks ahead.
Unknown: The US economy was very healthy before the induced coma. There’s a sense of hopelessness that probably comes with sheltering in place. But there’s a different sense of hopelessness that emerges early during a natural recession, one that immediately changes consumer/corporate behavior and weighs on labor markets. Policymakers are slower to respond in a natural recession because the economy is already receding by the time anyone figures out what happened. Stimulus is also impaired based on internal debates over moral hazard and political finger pointing. In this case, there’s really no one to blame and massive stimulus come at record speed. This time might actually be different…we’ve never awakened an otherwise healthy patient from an induced coma. And once they emerge from their homes, the US consumer may quickly forget the hopelessness that comes from sheltering in place.