While some economists are forecasting a rebound in the second half of the year, Gary Shilling expects the current recession will continue throughout this year and into the next.
Coincidentally, Fed Chairman Jerome Powell recently said almost the same thing when he told 60 Minutes that “a full recovery “ could stretch through the end of next year; we really don’t know.”
No one does know when the U.S. economy will recover from the depths of this recession, which has thrown more than 40 million people out of work, nor how strong the rebound will be because no one knows when the COVID-19 pandemic will end or when more efficacious treatments and, most important, an effective vaccine will be available.
Even as states, cities and towns end their lockdowns, allowing businesses and schools to reopen, many people may not feel comfortable leaving their homes and restricted social bubbles. And if there is another viral wave, which many epidemiologists expect, then governments could re-institute lockdowns or other restrictions to curtail the spread and once again the economy will slow.
Shilling, an economist and money manager, correctly forecast the 1973-1974 and 2007-2008 recessions as well as the one we’re experiencing now.
“We continue to forecast an “L” recession with economic collapse in the first half of 2020 followed by further declining quarters,” writes Shilling in his latest monthly Insight report. “This recession will probably stretch into 2021.”
Stock & Bond Markets See Opposing Economic Scenarios
In the meantime Shilling, who founded investment advisor A. Gary Shilling & Co., notes that stock and Treasury markets are trading on opposing forecasts for the U.S. economy. Stock traders seem to expect a rapid economic recovery; the Treasury market points to continued economic weakness and “lower inflation, if not deflation,” writes Shilling.
The S&P 500 has recovered 34% from its March 23 low, and Friday’s close of 3,044 was down just 5.8% year to date. The iShares 7-10 7-10 Year Treasury Bond ETF (IEF), in contrast, has gained over 11% year to date due to falling Treasury yields that pushed up prices. The long-term Barclays 20+ Yr Treasury Bond ETF (TLT) has gained 21% year to date.