In late April Marko Kolanovic, a financial analyst for JPMorgan Chase, wrote to clients with good news. Pandemic aside, investors should expect stock prices in S&P 500 companies to return to record numbers some time early next year!
“The S&P 500 should attain previous all-time highs,” Kolanovic wrote, “if the monetary measures are sustained.”
The key part of this phrase was the last bit, “if the monetary measures are sustained.” In countries that did not have a Federal Reserve Bank shooting a bazooka of cash daily at Wall Street, Kolanovic suggested the coronavirus would result in a 30 percent decline in the present value of earnings.
In other words, without intervention by the Federal Reserve, the United States in the coronavirus era would be looking at a Depression-level contraction.
Assuming the Fed bazooka keeps firing, however, a large portion of the investor class is already on a road leading back to champagne and confetti. And that, as Robert Frost would say, has made all the difference.
On the road more traveled, on the real side of the coronavirus economy, the pain has been historic. As of this writing, 30 million people have filed jobless claims during the COVID-19 crisis, and millions have lost their employer-based insurance.
At least one in three can’t make their rent, millions more can’t afford groceries, and workers in supermarkets, medical clinics, warehouses, and other professions are now in a macabre race to see if they’ll turn blue and die before corporate employers decide to slash their salaries or retirement benefits — which has already happened to front-line caregivers in some cities.
There are no projections of record earnings in the futures of such people. The best case is survival, and the grim reality of diminished economic horizons. Yet for the tiny sliver of people whose fortunes depend not on salaries, tips, and commissions, but upon the prices of financial products like stocks and bonds, the coronavirus response heralds a brave new world.
The $2.3 trillion CARES Act, the Donald Trump-led rescue package signed into law on March 27th,