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Is a recession brewing in the US amid the upcoming earnings season?

The number of new covid-19 cases will peak in April and then begin to diminish

With just two weeks left for the earnings season to start, the US stock market continued to be battered by the spread of the covid-19 outbreak at a faster-than-expected pace. The governments have closed the doors of businesses for flattening the curve of the outbreak and this led to the brew of a recession.

The first quarter has come to an end and the companies are gearing up for the upcoming earnings season in two weeks’ time. The investors have remained negative with regard to the impact of the covid-19 outbreak on the companies with the current Wall Street expectations of a decline in the S&P 500 earnings in 2020.

Stock market during covid-19 times
Photo by Rick Tap on Unsplash

The Conference Board expects a sizeable disruption to certain areas of the economy but doesn’t expect a full-fledged recession in 2020 unless new coronavirus cases continue to climb after April. The brokerage firm Goldman Sachs has revised its covid-19 projections with a bigger impact on GDP and employment is seen.

According to a CIBC Capital Markets report, the unemployment rate is poised to skyrocket to the north of 7% ahead with the worst of the layoffs likely to show up in April. This will compound the negative impact of quarantines on household spending with fresh fiscal stimulus only working to partly offset the blow.

The ISM manufacturing index fell to 49.1 last month from 50.1 in February. This reflected a drop in production due to supply chain disruptions and the closing of factories as virus containment measures. The reading is consistent with a contraction in the US economy’s overall growth rate, another evidence that the economy entered a recession in March.

Real GDP growth is likely to contract by 1% for the second quarter while expecting a rebound in the second half of 2020. For the whole year, real GDP growth is predicted to fall to 1.4% with the Conference Board’s latest economic forecast assumes that the number of new cases will peak in April and then begin to diminish.

The business leaders were concerned about the impact of the covid-19 outbreak on their business and on the economy as a whole, according to the second release of the PwC COVID-19 CFO Pulse Survey. However, the leaders believe that the business could return to business-as-usual within three months provided covid-19 started waning down.

However, over the next two to three months, a sizeable disruption is expected in certain parts of the economy, specifically in hotels, travel, restaurants, tourism, and industries that heavily depend on global supply chains. Following this, the signs of the recession have been strong in the near-term but it is less likely in the long-term.

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