S&P Declines As Instant Recession Arrives For U.S. Economy

Posted: Mar 23, 2020 12:45 PM
S&P Declines As Instant Recession Arrives For U.S. Economy

Source: AP Photo/Richard Drew

The response to the coronavirus pandemic in the U.S. sank the S&P 500 on Friday, 20 March 2020, where after having been flat for most the day, the deteriorating outlook for the U.S. economy was aided by New York Governor Andrew Cuomo's order to close non-essential businesses and for New York residents to stay at home, rattling traders and investors. The S&P 500 went on to close the day at 2,304.92.

The action is significant because with California having ordered its residents to stay at home on Thursday evening, the statewide economy shutdowns will effectively swing the U.S. economy instantly into recession.

The outlook for S&P 500 dividends continued to deteriorate, with the future quarters of 2020-Q2 through 2021-Q1 seeing declines in expected payouts. With the closing of the futures contract period for 2020-Q1, that quarter saw a boost, but that's looking backwards, not forwards. The following chart shows where the expectations for S&P 500 quarterly dividends stands as of the close of trading on Friday, 20 March 2020.

If you've seen last week's edition of our S&P 500 chaos series, but without the daily updates, please note we were forced to change the vertical scale of the chart to accommodate the deterioration in expectations for dividends.

We were also forced to reset the vertical scale of the alternative futures chart. Here's the chart as updated through the close of trading on Friday, 20 March 2020:

The actual trajectory of the S&P 500 is consistent with investors focusing on 2020-Q2 in setting stock prices, which is nearly a best case scenario given how much dividend futures have fallen.