Getting to recovery
Any talk of renewed confidence must start with sobering numbers. As the virus swept throughout the United States and businesses shut down, weekly jobless claims surged to 6.9 million for the week ending March 28, ten times the high during the global financial crisis of 2008 and 2009, Hyzy says. With millions of Americans staying home, spending on hotels dropped 68% from February to March, clothing by nearly 40% and restaurants by nearly 34%.
“But signs of stabilization have emerged,” Hyzy says. “Credit card spending has recently shown resilience, and consumers were generally in a healthy place prior to the crisis,” he notes. U.S. savings measured 8.2% in February, compared with an average of 4.6% in the years prior to the global financial crisis. “Higher savings could be cushioning some consumers through this recession,” he says. The recovery process, he adds, may run from the fourth quarter of 2020 through the first quarter of 2021.
Unleashing pent-up demand
That cushion may help propel a wave of consumer spending as virus fears ease, stay-at-home guidelines are lifted and Americans en masse seek to recapture a semblance of normal life. Hyzy believes this “pent-up demand” phase could start in earnest in the second quarter of 2021 and continue for the rest of that year. “For millennials, pent-up demand could mean buying homes for the first time as they look to start families and their spending power rises,” Hyzy says. For consumers of all ages, it could mean moving ahead with delayed purchases of furniture, clothes and cars. Hyzy points to China, where auto sales jumped by 366% in March as its economy began to reopen.
What can investors consider?
Investors, like consumers, may experience their own pent-up demand once the recovery takes hold. Amid the recent volatility, investors have fled to cash, with money market holdings currently valued at $4.5 trillion. “That’s higher than the entire market capitalization of the Eurozone,” Hyzy says.
Many investors are likely to return to stocks when volatility subsides, he adds. Large U.S. companies may be attractive, along with e-commerce and e-sports. Technology and healthcare are other promising sectors. At the same time, Hyzy emphasizes the importance of investing in a diversified portfolio based first on your long-term goals.