Investors have been wondering whether we've seen anything like this before. You know, the stock market crash, and rapid stock market rebound, and the disconnect between the economy and the stock market. Sir John Templeton once said “the four most dangerous words in investing are: this time it’s different”. Yet we think he would agree with us because this time is different – well, maybe during our lifetime anyway.
In today's chart we look at the severity of the impact on employment due to the economic shutdown - specifically in the US. The chart below shows us employment in the US during and after each recession since 1953 - 67 years of data. Each line represents employment (or unemployment) during a recession and begins at 100 - the beginning of the recession, and it shows us how long it took for employment to reach its pre-recession level.
The chart shows us we have seen nothing like the situation we are facing today - you can see the sharp drop in employment in the red line on the far left. Prior to the current economic and employment crisis, the GFC (2007) saw a relatively smoother decline with a prolonged recovery. Most employment declines during recessions follow a similar path with a "U" or "V" (1980) shaped recovery. The decline we are facing today is crazy, however, we have seen historically, the sharper the decline, the quicker the recovery. We can already see what appears to look like a 'V' shaped recovery, however its early days. As governments around the world continue to prop up the very fragile economy, the coming months will be telling.
The evolving COVID-19 pandemic could easily push the global economy into better or worse trajectories with upside surprises and setbacks along the way. The key risk is reinfection and further deterioration in the economy. Investors must ensure their portfolios are designed with these risks in mind, at the same time ensure they're positioned for the inevitable economic recovery.