Focusing on the road to economic recovery

By Russell Price, Chief Economist, Ameriprise Financial

Key Points

  • To maintain a balanced long-term perspective in your portfolio, it is important to look beyond the negative economic reports we expect in the near term.
  • Starting in the second half of 2020, the economy should begin a slow, choppy recovery that will vary by region. Recovery back to pre-pandemic levels could take several quarters.
  • Job gains should be poised for a strong post-virus rebound.

Amid the continued health and financial impacts from COVID-19, it’s appropriate to survey current conditions and evaluate prospects for a return to normalcy in the economy and financial markets. Indeed, difficult economic conditions can often inflict severe physical, mental and emotional consequences of their own.

The job market was hit especially hard amid the shutdown of economic activity, and its recovery will be critical to the well-being of millions of American families. From mid-March to the end of April, the Labor Department reported more than 30 million people, or about 19% of the workforce, lost their jobs as business activity came to a near-halt in most areas of the country. 

Fortunately, we believe rehiring activity should be strong, as restrictions on personal movement ease. However, it could take two years or more for the unemployment rate to get back under 5%. The unemployment rate was 3.5% in February, according to the U.S. Department of Labor.

Expanded unemployment benefits — including an extra $600 per week offered under the $2.0 trillion CARES Act federal stimulus package — should help laid-off workers through this period. The CARES Act also provides a payment of $1,200 per adult for those earning $75,000 or less per year, which spreads the federal support more broadly.

Financial markets look forward, and investors should too

Recent measurements of economic activity have been historically bad, and we’ll continue to see such reports a while longer. The U.S. Department of Commerce won’t release its first estimate of second-quarter gross domestic product (GDP) until late July, and it could show a historic decline of approximately 40% on an annualized basis or a 12% quarter-over-quarter decline.

Such reports shouldn’t come as a surprise to financial markets, and investors should continue to look forward, not backward. It’s not that investors should stick their heads in the sand, but financial markets typically focus 6–12 months into the future seeking the eventual return to normal life (or a new normal) that will eventually come.

Crisis periods are difficult but also fairly common

The modern world never experienced a challenge quite like COVID-19. But then, human history includes examples of turmoil and challenges of all sorts, and each one offered its own unique circumstances to overcome.

The nearby chart shows the Dow Jones Industrial Average on a logarithmic (Log) scale back to 1910. A Log scale makes index changes over time comparable and consistent. In other words, a doubling from 100 to 200 appears the same (covering the same distance) as a doubling from 1,000 to 2,000, or a doubling from 10,000 to 20,000.

Chart source: FactSet
Past performance is not a guarantee of future results.

When looking at the chart, take a moment to consider all the bad things that have happened since 1910. For example: two world wars, the Great Depression, epidemics and pandemics, the Korean War, the Vietnam War, the Cold War, 9/11, the Cuban Missile Crisis, 1987 financial panic and numerous other crisis events over the decades.  And yet, over the long term, the chart reflects each instance as the temporary phenomenon that it was.


It will take time for the economy and financial markets to return to recover fully. We currently believe it may take until the second half of 2021 for U.S. economic activity to reach pre-COVID-19 levels. This is a reminder of the importance of planning for the unexpected.

Although financial market conditions may remain challenging over the intermediate-term, we believe that with time economic conditions, corporate financial results and financial markets, in general, will recover. The natural human need and desire to conduct our daily lives and build a better future for ourselves and future generations will win out.