Jobless claims hit 6.6M as coronavirus cases spike

JP Morgan Private Bank Head of Cross-Asset Thematic Strategy Anastasia Amoroso joins Yahoo Finance’s Seana Smith to discuss the record-breaking jobless claims data.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance Live. We have the Dow and the NASDAQ both dipping negative within the last couple of minutes after trading up pretty significantly earlier this afternoon. And this, of course, comes after the US economy recorded a record number of jobless claims last week. That number topped a 6.6 million, bringing the two-week total to just around 10 million.

So, for more on this, I want to bring in Anastasia Amoroso of JP Morgan Private Bank. And, Anastasia, I mean, these numbers are pretty hard to digest. We had that 6.6 million figure this week, 3.3 million last week. Because of this rise in the jobless claims, because of the [INAUDIBLE] slowdown that we're seeing across when it comes to the economy, how sharp of a contraction do you expect coronavirus to trigger here?

ANASTASIA AMOROSO: Yeah, by far, we're going to have some of the deepest [? contractor ?] economic numbers that we have really seen since World War II in Q1 and in Q2. But a quick-- and I quantify this in just a minute. But, a quick comment on the initial jobless claims numbers that we've seen today, they're definitely a very stark number. And, because of that, we are going to see the unemployment rate numbers that are going to be reported in the next few months go up quite substantially.

So, [? if ?] [? consensus, ?] and ourselves included, we're looking for somewhere around 8.3% average unemployment rate in Q2. Chances are that's going to be closer to [? 10% ?] or more, based on the numbers that we saw reported this morning.

So what this also means in GDP terms is we're looking for a 10% decline in GDP in Q1, for a 25% decline in Q2, which, again, are some of the starkest numbers on record. But, the thing to keep in mind, it's not just how deep the contraction is going to be, but how quick the reversal could potentially come.

And so the average recession plays out, typically, over the course of four quarters. In this particular case, given the relief measures that are put in place, we could potentially see a quicker turnaround and could see this as a two-quarter slowdown versus something longer than that.

So, if that plays out, we're looking for-- to recoup some of the economic slowdown that we've seen in the first half. We're looking to recoup that in the second half. And now we're looking for GDP numbers of 11% and 7% in Q3 and Q4, so significant turnaround, but, as you can tell, not fully offsetting the declines of the first half.

SEANA SMITH: Anastasia, what do you think we need to see in order for the US economy to start to recover? Because there's debate out there as to whether or not we could see the US economy begin to recover until the coronavirus has completely abated. I mean, how are you guys gauging that situation at this point?

ANASTASIA AMOROSO: Yeah, there's several steps to the economic recovery here. And the first step that really needs to happen is the one that we're seeing play out right now, which is widespread containment measures. Something like 67% of US GDP is now in various stay-at-home type of mandates. And this is exactly what's needed in order to contain this virus. So you need to be a little bit patient with this because it does take two weeks, three weeks, maybe four weeks to see these measures yield results.

But, when we start paying attention to something like Italy, now, almost after a full month of a shutdown, there we are starting to see the new daily cases start to come down in Italy. And that's really the first very important step to see that maybe we are looking for some sort of better-- better numbers there.

So, in the US, it's very difficult to project the peak, but, if we just apply some of the data that we have from other countries, it suggests that it takes about four to five weeks in this acceleration stage. And so maybe in the US that means that, somewhere through mid-April, we could still see the new daily cases build, but, thereafter, we could start to see them slow down.

So let's say it is mid-April. It doesn't mean that we automatically go back to work, but it hopefully does pave the way for some of us to begin to slowly go back to work in May. And so that, ultimately, is what's needed for the economy to turn around is we need to start to see the relaxation of the stay-at-home orders. That's likely a May event, rather than April.

SEANA SMITH: Anastasia, do you think we've seen investor capitulation? And do you think capitulation is necessary in order for us to determine that we hit a market bottom?

ANASTASIA AMOROSO: It is absolutely one of the critical things to watch and is one of the two or three barometers that we're watching here to see if we have indeed had the market bottom. So, on investor positioning, we have seen pretty significant capitulation from the hedge fund community, from the Commodity Trading Advisors, CTA community. If we look at the leverage ratios there, the net exposures, they are now at extremely low levels.

And then, when we look at the broader community, we look at mutual fund outflows. We've had significant outflows from both equity and fixed-income funds. So we have seen a degree of capitulation there. And, just broadly speaking, when we look at implied equity allocation to fixed income allocation, it is now around the lowest levels we have seen since 2012, give or take. So that condition, investor capitulation, to-- to us, has largely been checked.

The other thing that I would add here is that let's say the base case scenario does materialize, and we do have a second quarter pick up of activity, starting let's say around July. Well, the market doesn't necessarily wait for the full resumption and better GDP numbers. The markets tend to trough before that. And we find that, on average, the markets trough 3 and 1/2 months before the end of a recession.

So now you couple very low investor positioning. You couple that with this stat that, typically, we bottom before the end of the recession. And, if you get the catalyst of slowly returning back to work-- let's say in May-- that is likely what's going to give us the signal that, yes, in fact, we have seen the market bottom. And we should see more upside to this market from that point on.

- So we've got millions of Americans who are waiting for those $1,200 stimulus checks. Now that the weekly unemployment number has doubled, do you think that the federal government has to do more to help Americans have jobs during this period of the coronavirus outbreak?

ANASTASIA AMOROSO: They may have to do more. We'll see how the next few weeks develops, but the reality today is, because of this $600 per week increase in unemployment benefits, the average person collecting the weekly check is going to be getting $975 per week. By the way, this compares very favorably with the average weekly wages we've seen in Q4 of last year of $936 per week.

So, although the numbers are pretty significant, as far as people who are now unemployed, most of them will be kept afloat by the check that the federal government is writing. Having said that, we do have other program-- programs out there that are trying to get money into the hands of consumers and small businesses. And, for example, there's 200-- there's $350 billion or so in small business program assistance that may end up having to be topped up with some additional measures.

SEANA SMITH: All right, Anastasia Amoroso of JP Morgan Private Bank, thanks so much for joining us this afternoon.

ANASTASIA AMOROSO: Thank you.