Bank of America Issues Recession Update

According to Bank of America, a recession is already here, with the economy expected to “collapse” in Q2. CNBC notes that the S&P 500 and Dow Jones Industrial Average are trading in bear market territory, and now sit around 30% below their all-time high levels.

“We are officially declaring that the economy has fallen into a recession ... joining the rest of the world, and it is a deep plunge,” Bank of America U.S. economist Michelle Meyer wrote in a note. “Jobs will be lost, wealth will be destroyed and confidence depressed.”

According to Meyer, the crisis will be short but will get worse before it gets better. Bank of America predicts a trough in April, followed by a “very slow return to growth thereafter with the economy feeling somewhat more normal by July.”

Meyer said “salvation” will come from aggressive action. “When it comes to the policy response, there should be no upper bound for the size of stimulus, in our view,” she said.

S&P Global echoed Bank of America’s sentiments, as it has stated that the U.S. could already be entering a recession because of the coronavirus pandemic.

"While economic data for March is just starting to be released, the severity of the blow from the coronavirus leads us to believe that the U.S. is entering recession—if not already in one," the financial company wrote in a research note Tuesday.

“The sudden economic reversal will bring intense credit pressure as a cash flow slump and much tighter financing conditions, as well as the simultaneous oil price shock, will hurt creditworthiness,” S&P adds. “These factors will likely result in a surge in defaults, with a default rate on nonfinancial corporates in the U.S that may rise above 10% and into the high single digits in Europe in the next 12 months.”