We are Officially in Recession, Ending the Longest 11-Years Expansion in US History
The S&P 500 has erased all of its 2020 losses and not a single one of its stocks have been down since the benchmark bottomed in March.
But the stock market is not the economy and according to the National Bureau of Economic Research, the worst US downturn since the Great Depression is officially a recession now.
“The committee recognizes that the pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions,” the Business Cycle Dating Committee of NBER, the official arbiter of recessions said in a statement on Monday.
Nonetheless, the unprecedented magnitude of the decline in production and employment and “its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”
In March this year, US Federal Reserve Chairman Jerome Powell had also said that “we may well be in a recession.”
The committee noted a significant decline in economic activity spread across the economy after a “clear peak” in February.
“A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough.”
In Q1 2020 US GDP fell 5% and could post the worst decline in Q2, at over 50%. The unemployment rate in April is more than 19.5%.
The recession brings an end to the longest 11-years expansion in US history.
Most economists, however, think the contraction will end in the second quarter. Goldman Sachs economist, Jan Hatzius said while this is “almost certainly the deepest recession since” the war, “it is almost certainly also the shortest recession.”
Bitcoin in Recession
This could also have an effect on the climbing stock market. Some say once this rally falters, it will all reverse.
However, for now, the rally in US stocks has claimed another bear. Stan Druckenmiller who was warning about owning stocks last month and noted that it isn’t usually wise to bet against the Federal Reserve is now saying that he was “far too cautious,” during the current gains.
“I missed a great opportunity here. Won’t be the last time,” said the legendary investor.
What’s happening is the “excitement of pre-opening” which is in part due to the intervention by the Fed and on positive news on the prospect of a vaccine for coronavirus.
The cryptocurrency market, meanwhile, is holding steady for the past few weeks, with bitcoin trading around $9,700.
Market participants believe recession to be a good thing for bitcoin. As a matter of fact, they see it as a perfect storm for the next bull market.
Bitcoin which has been following the risky assets may decouple from S&P 500 and central banks’ finance stimulus packages which include increasing monetary supply will put pressure on fiat currencies and turn out to be positive for BTC price.
Bitcoin acting as a risky asset could spell danger for the flagship cryptocurrency during a recession but it doesn't invalidate its potential as a safe haven.
Also, the digital asset’s correlation with gold is at a record high which means just like the precious metal it could experience a sell-off only to emerge as the winner.