Could we crash again?

With rising COVID-19 cases and a looming decision on Federal Unemployment Benefits, the economy looks more vulnerable than ever

Watching the news, we get different pictures on how the nation is dealing with the pandemic. At one hour, we see cases rising. At another hour, reopening is happening. Sometimes, you have news that reopening plans have been canceled because of the rising cases. And with high unemployment rates and some places closing again, the American consumer is poorer than ever.

Meanwhile, the markets are near all-time highs. Crazy isn’t it? While some might say that it’s a reflection of a strong recovery, the conditions the economy is currently facing aren’t being reflected in stock prices. The stock market hasn’t been an accurate indicator of how well the economy has been doing but at least it has reflected the economic booms and busts for periods at a time.

Many will attribute the stock market and the bond market’s great performance to the Federal Reserve. With more money being printed and being used to buy bonds, interest rates have been falling. With record-low interest rates, companies are issuing debt to buy back more stock, adding more money into the stock market. The Federal Reserve is essentially distorting the stock market.

With many companies reporting losses, it’s hard to be optimistic about the economy. More lay-offs are being expected and more bankruptcies are coming. The financials of many Americans are more fragile than ever. It’s sad. As the federal CARES Act expires, the financial situation for many Americans will get worse. Spending in communities will decrease significantly, making reopening weaker. With more people defaulting on their mortgages or not being able to make rent payments, business activity will plunge.

These times are scary. I wish that everyone will be good and that the Federal Government does renew the federal unemployment benefit of $600 to every American that is currently being unemployed. While some might find it controversial that people are getting paid more from benefits than wages, I find it a great incentive for people to stay home than go outside and risk being a contributor to the growing cases. And for the many doctors, nurses, and other highly paid professionals getting laid off because of the pandemic, extending that $600 in benefits greatly helps them.

Overall, the markets are at a major inflection point. With the rising cases hindering reopening and the likelihood that the federal CARES Act expiring, the outlook for the rest of the year and for years to come looks weak. Meanwhile, if the federal unemployment benefits do get renewed by the White House, then I would be more optimistic about the economy as consumers can continue to not only pay their bills but also contribute dollars to local businesses.