US GDP fell over 30% in the second quarter as markets falter

Predicted V shape recovery yet to materialise as many economies around the world prepare for a second coronavirus spike

Article updated: 31 July 2020 11:00am Author: Helal Miah

  • The markets have been bracing themselves for the worst ever set of US quarterly GDP, with the figures falling by 32.9% during Q2
  • As there are seemingly further waves of this virus, the strong recovery in activity is showing signs of faltering
  • I believe that corporate earnings in the weeks and months ahead will lead the market to reassess valuations, or at least not stretch valuations any further.

The markets have been bracing themselves for the worst ever set of US quarterly GDP numbers and in that regard our expectations have been fulfilled, with the figures falling by 32.9% during Q2. This was not as bad as the feared 34.5% fall that was expected. The initial reaction to the data was muted given the dovish stance taken by Jerome Powell last night.

However, as the day progressed, markets went into selling mode as the more recent weekly jobs data (1.4m new jobless claims is quite the opposite of a recovery) supported evidence of a slowing in the recovery. Meanwhile, Trump’s tweet about delaying the election and his attempt at deflecting from the poor economic data only put more fear into the market.

Commentators who suggested a strong V shaped recovery on evidence of the initial data from the trough will now (if not already) be adjusting to a shallower angle of the recovery part of the V.

As we had believed earlier, this crisis will be longer lasting than many had previously thought and we’re only at the early days of the economic fallout. As furlough schemes end and more people get laid off, it’s natural to expect consumers savings rates to increase. On top of this, the divide between the Republicans and Democrats on the next round of fiscal stimulus and unemployment benefits will only reduce incomes of those out of work. This will hit consumption going forward. However, a huge amount of Government and monetary stimulus since the start of the crisis has resulted in a disconnect between the stock market and the economy, and I believe that corporate earnings in the weeks and months ahead will lead the market to reassess valuations, or at least not stretch valuations any further.


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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment. 

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