Economic Outlook: Certainty within Uncertainty
In this unprecedented time, the attempts to contain the spread of COVID-19 had direct impacts on the US economy in the spring. Just when we thought we had a firmer handle on the virus with states relaxing social distancing restrictions, we saw a sharp case uptick, in some areas more than what was seen in the spring. That being said, the virus is going to continue to impact the economy . While federal support has limited some of the economic effects, the government will likely have to step in again to mitigate more of the economic effects due to COVID-19.
Although the latest recession was the shortest on record, we are not necessarily done feeling its effects The recession ending allows for the economy to start growing again but it certainly has not recovered. Like what has been seen already, the road to recovery is going to depend on our efforts to contain the virus. We will likely see a few quarters go by before we see a return to pre-COVID levels of the GDP.
Oil Prices Set for Future Recovery
The West Texas Intermediate (WTI) oil prices hitting a historic low in April showed some of the worst of what the pandemic brought to the global market. Even though negative prices are not likely to be seen again, the recovery will still take time. The demand outlook for the latter part of 2020 should steadily improve but it is not practical to assume that it will fully normalize in 2021.
While the recovery in demand starts to take shape, the new production cuts put in place by OPEC and Russia in May will help to balance out the ongoing supply/demand situation by gradual deceasing production levels into 2022.
The US and China: A Fragile Relationship
The pandemic and the associated economic effects that followed has put a strain on the relationship between the US and China. Leading this effort are the Trump administration’s China “hawks” who have recently focused on implementing administration policies to challenge China in a wide array of areas. These areas include limiting China’s access to US technology and the U.S.’s capital market ties to the country. Although these efforts are being led by the current administration, it is expected these are long-term issues that will be tackled regardless of who is in the White House.
The economic relationship between the US and China may be the only area of agreement for the time being as they both try to stabilize the global economy at this uneasy time.
Uncertainties May Present Opportunities
Despite all that has happened this year and the challenges still to come, there are indicators of continued strengthening of our economy although it may be slow.
Efforts to contain the coronavirus led to a steep decline in US economic activity in 2Q20. Growth has picked up sharply as states have begun to reopen, but the level of activity will remain far below where we started the year. Absent a vaccine or effective treatment for COVID-19, the recovery will be gradual,with significant changes in consumer spending patterns and global trade. Fiscal and monetary policy have helped to offset much of the near-term damage, but fiscal support may fall short of what’s needed in the months ahead.
Raymond James. “Economic Snapshot.” Investment Strategy Quarterly. Pg. 17, Web.
Raymond James, “Investment Strategy Quarterly Recap.” Investment Strategy Quarterly. Pg. 4,10, 12, 14 Web. To request a full copy of the Raymond James report, please contact our office
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. There is no assurance that any forecast mentioned will occur. Expressions of opinion are as of this date, subject to change without notice and are not guaranteed to occur. Some material in this newsletter prepared by Raymond James for use its financial advisors. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. All opinions are those of the author and not those of Raymond James. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors