March 23, 2020
Executive Summary: A global recession is unavoidable and it will extend to the US. The depth will be influenced by the virus containment efforts, and the duration will be shaped by monetary and fiscal stimulus. Our base case now calls for a US recession, which starts in the current quarter and includes a painfully deep decline in the second quarter of 2020, with the trough likely occurring in July or August. We believe that the unprecedented amount of monetary policy accommodation by global central banks, coupled with bold fiscal stimulus by key countries such as the US and Germany, should work to blunt the downside and hasten the recovery.

Factors Influencing Our Updated Outlook

In the very early stages of the global coronavirus (COVID-19) outbreak roughly a month ago, we said that the impact on the US economy should be more muted and it was too early to peg the exact magnitude as well as talk of a US recession.

Unfortunately, this episode has tracked much worse than we initially anticipated on nearly every level (the spread of the epidemic, global and US economic fallout, financial market turmoil, etc.). While government action was the right thing to do from an epidemic standpoint, the speed and extent of the shutdown has swiftly halted large chunks of the global and US economy.

Moreover, this a unique situation, insofar as there has never been such a widespread shutdown in the US. While the initial shutdown was most apparent within leisure and hospitality, including hotels, airlines, cruise lines, and restaurants in certain select cities, it has mushroomed quickly into state-level “stay-at-home” orders. This means closing everything but essential industries, which generally means grocery stores and pharmacies, food producers, utilities, certain transportation sectors (such as trucking and shipping), banking, governmental services (including trash collection and military), health care, and safety and law enforcement. Furthermore, schools on all levels in most states have been shuttered and are a large component on of the non-essential side.

There has been an unprecedented amount of monetary policy accommodation by global central banks to blunt the downside, highlighted by more than 30 emergency rate cuts. The Federal Reserve (Fed) has led the way, slashing interest rates effectively to zero and unfurling multiple tools, as well as expanding US dollar liquidity swap lines with 14 key central banks to provide liquidity for global banks and markets. But the Fed has gone well above and beyond its actions during the Great Recession era including buying corporate bonds and bond exchange-traded funds (ETFs). Ultimately, the Fed’s actions should help markets function properly and ensure the general flow of credit to businesses and individuals, but monetary policy has limitations.

Fiscal stimulus would be much more useful for Main Street. Yet, only a relatively small sliver of the expected fiscal stimulus has been enacted to this point including paid sick leave, pushing back the deadline for tax filings and payments to the IRS, enhanced jobless benefits, and increased food assistance, which would help support hourly workers disproportionately impacted by the fallout from COVID-19 shutdowns.

A significantly larger fiscal stimulus package is in the works from Congress and the White House with estimates of the size being between $1.5 trillion to $2 trillion. Among the potential features are $1,000 checks for consumers, interest-free relief for federal student loans, and extending unemployment benefits for up to 39 weeks (from 14 to 20, depending on the state). Also, more funding for Medicaid has been proposed, which would help states deal with the increased health care costs of COVID-19.

Outlining a US Recession

Our base case now calls for a US recession. The downturn starts in the current quarter (the first quarter of 2020) with the abrupt shutdown of activity. It progresses and accelerates into a painfully deep decline during the second quarter of 2020 as the cascade of closures—due to a dramatic increase in unemployment and the loss of incomes for many workers—leaves a crater in gross domestic product (GDP), which could perhaps decline double digits. Based on current information, we believe the trough is likely to occur in July or August.

While the process of climbing out of that hole is likely to be uneven, the path should be greatly improved by fiscal stimulus. Yet, a concrete fiscal stimulus package from Congress has not been determined. Accordingly, we have not included all of the possible fiscal stimulus in our estimates as the size, scope and specific form of the plan will greatly impact the speed, efficacy, and shape of the recovery.

As such, our updated estimate of the US economic impact due to the COVID-19 outbreak remains uncomfortably wide, reducing our expected 2020 GDP range to somewhere between -2% to 0.5% on a year-over-year percent change basis. Similarly, while the recovery might result in V-shaped pattern (a sharp downturn with an equally sharp snapback), it could be a U-shape (a sharp downturn with an extended bottom and then a sharp ramp up) or an asymmetric shape.

Again, in the absence of hard data, we warn that it is too early to comfortably rely on these estimates and forecasts. This situation is fluid, and we will adjust as necessary based on new information.

Bottom Line

All economic data is inherently backward looking. Some data, including quarterly data such as GDP and productivity, are reported on a considerable lag. Therefore, it will be several more weeks (or months in the case of quarterly data) before most data begin to reflect the COVID-19 shutdown period. Alas, we anticipate a sharp downturn in most data, which will get much uglier before it gets better.

That said, we believe that the unprecedented amount of monetary policy accommodation by global central banks, coupled with bold fiscal stimulus by key countries such as the US and Germany, should help blunt the downside and hasten the recovery.


This material was provided by SunTrust Private Wealth Management for use by BB&T Wealth.

Advisory managed account programs entail risks, including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure which includes program details, including risks, fees and expenses.

SunTrust Private Wealth Management is a marketing name used by Truist Financial Corporation and the following affiliates: Banking products and services, including loans and deposit accounts, are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank and SunTrust Delaware Trust Company. Securities, brokerage accounts and /or insurance (including annuities) are offered by SunTrust Investment Services, Inc., BB&T Securities, LLC, and P.J. Robb Variable Corp., which are SEC registered broker-dealers, members FINRA, SIPC, and a licensed insurance agency where applicable. Investment advisory services are offered by SunTrust Advisory Services, Inc., GFO Advisory Services, LLC, BB&T Securities, LLC, Sterling Capital Management, LLC, Precept Advisory Group, LLC, and BB&T Institutional Investment Advisors, Inc., each SEC registered investment advisers.  BB&T Sterling Advisors, BB&T Investments and BB&T Scott & Stringfellow are divisions of BB&T Securities, LLC. Mutual fund products are advised by Sterling Capital Management, LLC.

While this information is believed to be accurate, SunTrust Banks, Inc., now Truist Financial Corporation, including its affiliates, does not guarantee the accuracy, completeness or timeliness of, or otherwise endorse these analyses or market data.

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Truist Financial Corporation makes no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis of any security, company, or industry involved.  This material is not to be construed as an offer to sell or a solicitation of an offer to buy any security.

Opinions and information expressed herein are subject to change without notice. STIS and/or its affiliates, including your Advisor, may have issued materials that are inconsistent with or may reach different conclusions than those represented in this commentary, and all opinions and information are believed to be reflective of judgments and opinions as of the date that material was originally published.  STIS is under no obligation to ensure that other materials are brought to the attention of any recipient of this commentary. 

Truist personnel are not permitted to give legal or tax advice.

Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.

STIS/STAS shall accept no liability for any loss arising from the use of this material, nor shall STIS/STAS treat any recipient of this material as a customer or client simply by virtue of the receipt of this material.

The information herein is for persons residing in the United States of America only and is not intended for any person in any other jurisdiction.

Investors may be prohibited in certain states from purchasing some over-the-counter securities mentioned herein.

The information contained in this material is produced and copyrighted by Truist Financial Corporation and any unauthorized use, duplication, redistribution or disclosure is prohibited by law.  

STIS/STAS’s officers, employees, agents and/or affiliates may have positions in securities, options, rights, or warrants mentioned or discussed in this material.

Asset classes are represented by the following indexes. An investment cannot be made directly into an index.

S&P 500 Index is comprised of 500 widely-held securities considered to be representative of the stock market in general.

©2020 Truist Financial Corporation. BB&T, SunTrust®, the SunTrust logo, and Truist are service marks of Truist Financial Corporation. All rights reserved

CN2020-0704 EXP12-2020