No stimulus, 200,000 coronavirus cases per day could spur Q4 economic contraction: Guggenheim CIO
A lack of stimulus from Congress and a further climb in COVID-19 cases could spur a contraction in economic growth in the fourth quarter, under a scenario painted by the chief investment officer at Guggenheim Investments.
The U.S. economy has been gradually recovering from a record GDP contraction in the second quarter and slowing job market, 638,000 jobs were added in October, better than expected. That growth could flip to a “modest” contraction in the October-December period, Scott Minerd, who is also chairman of Guggenheim Partners, told Yahoo Finance Live. His firm has more than $230 billion in assets under management.
Investors’ hopes for another stimulus this year could be dashed, he said, by an election fight. “That window is closing very quickly on us, because I doubt — if the president is contesting the election — that Congress will get very much time to focus on the stimulus package this year.”
As of Friday afternoon, former Vice President Joe Biden had taken the lead in the battleground states of Pennsylvania, with 98% of ballots counted, and Georgia, with 99% of votes counted. President Donald Trump’s campaign in a statement said, “this election is not over,” and the president said, “We will pursue this process through every aspect of the law.” Trump on Thursday night alleged election fraud, without any evidence.
Congress doesn’t have much time to consider stimulus under the shadow of a contested election. And there’s no guarantee that Republicans and Democrats will come to an agreement since they couldn’t arrive on a compromise before the election. U.S. Senate Majority Leader Mitch McConnell said Friday that the need for a large stimulus package is lessened by an improving economy, as evidenced by a drop in the unemployment rate to 6.9% in October. U.S. House of Representatives Speaker Nancy Pelosi is holding fast to her plan for a larger package, which had been targeted to be around $2 trillion.
Then there’s the coronavirus, which reached another grim milestone in the U.S.: The country reported 121,504 cases on November 5, a new record, with more than 1,100 deaths reported. Minerd has been closely tracking the rate of increase in cases.
“If the trend continues, by the time we get to Thanksgiving, we could be close to 200,000 cases a day, which would be roughly four times the peak that we reached last spring when everything went into lockdown,” he said. “We have a lot of uncertainty over the next 30 to 60 days as COVID resurges, that we have more shutdowns.”
The possible contraction that Minerd is floating isn’t a consensus. The forecast for fourth-quarter GDP growth is 3.8%, according to estimates compiled by Bloomberg.
All of that said, Minerd thinks that given the Federal Reserve’s statement following its policy meeting Thursday, “I just don’t see policymakers letting this slide into another crisis.”
Julie Hyman is the the co-host of Yahoo Finance Live, 9am-11am ET.
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