In the pandemic economy, financial markets have flashed confusing economic signals, muddied by monetary support, the trading impulses of the fast money, and ever-more complex infection data. But this week the message is loud and clear: the recession is hitting hard.
After a stimulus-driven rebound for the S&P 500 Index, the chaos in oil markets is proving too much for investors to ignore. Crude is now pricing in no less than total demand destruction, and U.S. stocks are slumping as the fallout intensifies from the prolonged economic lockdown.
Oil is on the front line of the turmoil, but it’s far from the only asset that has been ringing alarm bells. Corporate bonds have recovered thanks to policy support, but fear of default is rife. Government bond yields near historic lows point to expectations that virus-induced pain will be with the world for months or years to come.