Why the Stock Market Recovery Won’t Survive the Covid-19 Depression

  • U.S. stocks rallied on Tuesday on hopes that Congress will pass a stimulus package.
  • Economists forecast a recession that could be as severe as the Great Depression.
  • Stimulus measures won’t be enough to prevent deep damage to the economy.

The U.S. stock market soared Tuesday on hopes that Congress would soon sign a stimulus bill to protect the economy from the coronavirus pandemic.

Congress and the White House are negotiating a rescue plan that could inject nearly $2 trillion into the economy. The emergency measure would provide direct payments of $1,200 to most American adults and help small businesses closed across the country.

Democrats blocked a vote on Monday to push the package forward, criticizing a $500 billion fund the Republican proposal keeps for struggling businesses. But House Speaker Nancy Pelosi said this morning she expects a deal “in the next few hours.”

Why The Stock Market Rally Won’t Last

The Dow Jones rose as much as 1,800 points in response to optimism about the deal. The stock market’s most closely-watched index had fallen to its lowest level in three years on Monday.

The market has experienced rebounds like this before, only to disappear immediately. Since stocks started selling off on February 20, the Dow has had seven days of gains, rising more than 4% on all but one occasion. After each increase, stocks fell the next day. So we should expect another plunge after the rally on Tuesday.

Since February 20, the Dow has had seven days of gains, none of them back-to-back. | Source: Yahoo Finance

Investors need to see the number of new Covid-19 infections stabilize before the stock market finds a bottom.

According to Rob Sharpe, chief investment officer and group investment director at T. Rowe Price, at least 10% of the U.S. economy is shut down.

Covid-19 Could Push The U.S. Into a Depression

That’s why analysts warn that the U.S. may face a prolonged depression rather than the type of short recession and rapid rebound that…

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