A ‘Much More Severe’ Stock Market Downturn On The Way As Coronavirus Crisis Continues, Analysts Warn

A picture of a stock trader at the NYSE.
Spencer Platt / Getty Images

The stock market could be headed toward a selloff more severe than anything that has come so far during the coronavirus crisis, analysts are warning.

As MarketWatch reported, the stock market has held up relatively well despite the widespread economic gridlock that the coronavirus has created, with millions of Americans out of work and businesses across the country closed due to state restrictions.

That may not last long, predicts Doug Ramsey, chief investment officer at The Leuthold Group. As the report noted, he is warning that a “much more severe” selloff is likely on the way as the depth of the economic crisis brought on by the coronavirus pandemic is still not fully known — and in a way still unknowable.

“The stock market punishment doesn’t fit the economic crime,” he said. “We expect it eventually will.”

As the report noted, the stock market has at times appeared out of step with the rest of the economy. On Friday, when newly released unemployment numbers showed that a record 20.5 million Americans lost their jobs and the once record-low unemployment rate shot up to 14.7 percent, the Dow Jones Industrial Average closed up 455 points.

Ramsey is not the only one predicting future turmoil for the stock market. As MarketWatch noted, financial expert Michael Gayed said there is the potential for another stock market crash once the impact of the coronavirus is fully realized. Gayed, publisher of the Lead-Lag Report, said that this could take place by the end of this year as the more optimistic predictions for an economic recovery are forced to come to grips with reality.

“This feels like a home construction project. It’s going to cost more money and take longer than any estimates,” he said of the ongoing coronavirus crisis and its economic impact. “In the absence of a vaccine, behavior’s changed in a way that will make any longer-term gains unjustified no matter how much money Papa Powell prints.”

There have been other dire warnings about the slim chances of a sharp economic recovery and the likelihood that the effects of the coronavirus crisis will be felt for years. The Associated Press noted that many employers forced to shed jobs due to nationwide restrictions are starting to realize that many of these once-temporary layoffs will become permanent.

Claudia Sahm, a former Federal Reserve economist and director of macroeconomic policy at the Washington Center for Equitable Growth, said that many of the companies themselves will not make it through the crisis.

“For a lot of those furloughed workers, a non-trivial number will have no job to go back to, because the company they worked for will have failed or will need fewer workers than they used to,” Sahm told The Associated Press.