Markets Make Some Investors Think Recession, Perhaps Depression
2020-03-18
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1The coronavirus outbreak has sent shock waves through stock markets in the United States and around the world.
2Now, with a sharp drop in share prices, investors are beginning to consider the possibility of something worse than a recession.
3With the possibility of weak economic conditions over a long period, people are now talking about a credit crisis or even a depression.
4The rising shock from the outbreak and questions over how it will spread has left both investors and economists trying to understand the financial effects.
5"This market looks like it has already priced in most of a...recession," said Frances Donald, an economist at Manulife Investment Management.
6"It is now on top of that having to price in some probability of a credit crisis."
7Experts with leading banks and financial businesses now say they expect a sharp drop in economic activity over the next three months, maybe longer.
8They note that governments in the United States and Europe have told citizens to stay at home and ordered restaurants and schools to close.
9There is hope among some economists, however, that the economy will start expanding again later this year.
10But that depends, in part, on efforts to contain COVID-19, the disease caused by the new coronavirus.
11The S&P 500 is one leading measure of American stock prices.
12The S&P, on average, has fallen 28 percent from its high to lowest levels during recessions, notes Keith Lerner, a market historian.
13Lerner works for Truist/SunTrust Advisory Services.
14At the end of trading on Monday, the S&P 500 index had dropped nearly 30 percent since its high on February 19.
15During the financial crisis in the late 2000s, it was much worse.
16At that time, the S&P 500 fell more than 50 percent.
17"A 2008-like financial contagion is not yet priced into this market," Donald noted.
18She said the stock market will not calm down until investors see a calming of credit markets and the number of coronavirus cases starts to decrease.
19Stocks fell on Monday, a day after the U.S. Federal Reserve took emergency action designed to strengthen the economy.
20The Fed used the same weapon -- interest rates -- that helped the country recover from the financial crisis of 2007 to 2009.
21But the market's reaction on Monday after the Fed's decision to cut interest rates is "a sign of a total breakdown of confidence," said economist Peter Cardillo of Spartan Capital Securities.
22He says that brings up the main question: how bad a recession will we have?
23Joachim Fels serves as global economic advisor at PIMCO.
24He said in a written commentary that a worldwide recession appeared to be inevitable.
25He added that the job for governments and central banks was to try to make the recession as short as possible and to avoid an economic depression.
26Fels defined a depression as a prolonged period of weak economic activity, a large rise in unemployment, businesses going bankrupt and bank collapses.
27One big Wall Street name is very concerned.
28Billionaire investor Ray Dalio is worried that the Federal Reserve used all its power too early when it cut interest rates to near zero.
29Dalio says he was concerned that another economic downturn could leave nowhere to go but to the same road that brought on the depression of the 1930s.
30Experts with Deutsche Bank noted last week that the market's recent volatility was coming at "a frequency previously seen only in the Great Financial Crisis and the Great Depression."
31"Nothing else matters if we can't get this under control," said Eric Winograd, chief U.S. economist at AllianceBernstein.
32Winograd noted that he does not expect a depression, but a very bad recession.
33I'm Caty Weaver.
1The coronavirus outbreak has sent shock waves through stock markets in the United States and around the world. 2Now, with a sharp drop in share prices, investors are beginning to consider the possibility of something worse than a recession. With the possibility of weak economic conditions over a long period, people are now talking about a credit crisis or even a depression. 3The rising shock from the outbreak and questions over how it will spread has left both investors and economists trying to understand the financial effects. 4"This market looks like it has already priced in most of a...recession," said Frances Donald, an economist at Manulife Investment Management. "It is now on top of that having to price in some probability of a credit crisis." 5Experts with leading banks and financial businesses now say they expect a sharp drop in economic activity over the next three months, maybe longer. They note that governments in the United States and Europe have told citizens to stay at home and ordered restaurants and schools to close. 6There is hope among some economists, however, that the economy will start expanding again later this year. But that depends, in part, on efforts to contain COVID-19, the disease caused by the new coronavirus. 7The S&P 500 is one leading measure of American stock prices. The S&P, on average, has fallen 28 percent from its high to lowest levels during recessions, notes Keith Lerner, a market historian. Lerner works for Truist/SunTrust Advisory Services. 8At the end of trading on Monday, the S&P 500 index had dropped nearly 30 percent since its high on February 19. 9During the financial crisis in the late 2000s, it was much worse. At that time, the S&P 500 fell more than 50 percent. 10"A 2008-like financial contagion is not yet priced into this market," Donald noted. She said the stock market will not calm down until investors see a calming of credit markets and the number of coronavirus cases starts to decrease. 11Stocks fell on Monday, a day after the U.S. Federal Reserve took emergency action designed to strengthen the economy. The Fed used the same weapon -- interest rates -- that helped the country recover from the financial crisis of 2007 to 2009. 12But the market's reaction on Monday after the Fed's decision to cut interest rates is "a sign of a total breakdown of confidence," said economist Peter Cardillo of Spartan Capital Securities. He says that brings up the main question: how bad a recession will we have? 13Joachim Fels serves as global economic advisor at PIMCO. He said in a written commentary that a worldwide recession appeared to be inevitable. He added that the job for governments and central banks was to try to make the recession as short as possible and to avoid an economic depression. 14Fels defined a depression as a prolonged period of weak economic activity, a large rise in unemployment, businesses going bankrupt and bank collapses. 15One big Wall Street name is very concerned. Billionaire investor Ray Dalio is worried that the Federal Reserve used all its power too early when it cut interest rates to near zero. 16Dalio says he was concerned that another economic downturn could leave nowhere to go but to the same road that brought on the depression of the 1930s. 17Experts with Deutsche Bank noted last week that the market's recent volatility was coming at "a frequency previously seen only in the Great Financial Crisis and the Great Depression." 18"Nothing else matters if we can't get this under control," said Eric Winograd, chief U.S. economist at AllianceBernstein. Winograd noted that he does not expect a depression, but a very bad recession. 19I'm Caty Weaver. 20The Reuters News Agency reported this story. Susan Shand adapted it for Learning English. George Grow was the editor. 21____________________________________________________ 22outbreak - n. the sudden arrival of disease or war 23index - n. a group of things that are listed together 24confidence - n. certainty that things will go well 25contagion - n. in economics, the process of one bank or company failure after another 26inevitable - adj. something that is almost certain to happen 27bankrupt - adj. not having enough money to pay debts 28volatility - n. changing in sudden or extreme ways 29frequency - n. the condition of something happening often