The market may have already priced in the coronavirus recession: Morning Brief

Wednesday, March 18, 2020

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And a potential reason for optimism in the second half of the year

The stock market rallied on Tuesday, with the S&P 500 rising 6% to snap a three-day streak of 9% moves.

However, the benchmark index is still down more than 25% from its record high.

But the market’s decline in the last month has made one thing clear: investors believe a recession is inevitable. And perhaps fully priced-in.

Tom Lee at Fundstrat said in a note this week that, “equity markets [were] down 30% from their highs and as we noted last week, this is pricing in >100% probability of a recession (based on price decline).”

Lee notes that we’ve seen there have been 22 stock market declines more than 20% since 1900, with the current drawdown ranking 14th overall. The median bear market recession sees stocks drop by an average of 30%, suggesting, again, that just about a full recession has been priced in to the market.

And economists are starting to agree.

S&P Global said Tuesday it expects economic impacts from the coronavirus will lead to a global recession in 2020, with the firm forecasting U.S. GDP growth likely to be flat this year. Some Wall Street economists have surmised that U.S. GDP growth could fall by as much as 10% in the second quarter.

And Morgan Stanley economists said Tuesday they expect a 4% drop in GDP growth in the second quarter and a likely recession this year.

The firm is looking for a rebound in the third quarter, but writes that, “while our base case does not have the textbook two consecutive quarters of negative growth, we don’t want to put too much emphasis on the semantics.

“The sharp contraction in growth we expect, paired with the rise in unemployment, and current market conditions we believe is enough to justify calling this recession.”

Looking past the second quarter, however, there are potential — and we stress: potential — reasons for relative optimism.

Traders at the New York Stock Exchange listen to President Donald Trump’s televised White House news conference, Tuesday, March 17, 2020. (AP Photo/Mark Lennihan)

In a note on Tuesday, Neil Dutta at Renaissance Macro noted, like Lee and others, that the market has priced in a full recession. Again, relative optimism.

Dutta also posits that some big companies will keep people employed “out of a sense of civic responsibility,” a move we see flashes of becoming more widespread in spot announcements that some restaurants, stadiums, and other places, heavily staffed by hourly workers, will continue paying employees during coronavirus-related shutdowns.

And finally, the unemployment rate is starting from a low base and in a short-term period of coronavirus stress Dutta suspects unemployment could peak below 4.5%.

All of this, of course, depends on what happens in Congress, on the progression of the virus through the population, and a variety of other factors.

Anyone who thinks they know where or when or why this thing will turn around has a bridge to sell you. But building a case for why we’re nearing the most acute phase of this financial crisis is at least appearing possible.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today


  • 7 a.m. ET: MBA Mortgage Applications, week ended March 13 (55.4% expected)

  • 8:30 a.m. ET: Housing starts, February (1.502 million expected, 1.567 million in January)

  • 8:30 a.m. ET: Building permits, February (1.500 million expected, 1.550 million in January)



  • 7 a.m. ET: General Mills (GIS) is expected to report adjusted earnings of 76 cents per share on $4.21 billion in revenue

  • Other notable reports: Nio (NIO)



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