Can an economy pick up from where it left off? On February 20, 2020 the market suddenly woke up to the possibility of COVID-19 causing significant disruption to the U.S. economy and over the next seven trading sessions the S&P 500 dropped more than 12% even as trading volume in the SPY shot up significantly as you can see from the chart below.
The first phase of the decline occurred just before the CDC confirmed the first case of community spread in the U.S. and the sell off accelerated after a brief respite. We wrote about this in our previous premium post titled The COVID-19 Watch List where we said,
Community spread was a wake up call to local and federal agencies as well as the U.S. stock market. A 50 basis point rate cut from the fed also did not appear to ease fears as the market battled with both the risk of a highly infectious disease and a Bernie Sanders presidency. With Joe Biden taking the lead on Super Tuesday with an estimated 566 delegates (1,991 needed to win the nomination), the market rebounded strongly as at least one of the two key perceived risks appeared to abate.
For me, the canary in the coal mine regarding COVID-19 was when British Airways stopped all flights to mainland China in late January and United and Delta followed suit by the end of the same week. Cutting flights to the second largest economy in the world is not an action taken lightly and I can only imagine the kinds of scenarios the risk management teams of these companies considered before deciding on this course of action.
Getting back to the question of whether an economy can pick up where it left off, it depends on which of the following scenarios play out.