CNN Business/Matt Egan
Why the loss of RBG could hurt the fragile economic recovery
Just when you thought 2020 couldn’t get any more chaotic, the death of Supreme Court Justice Ruth Bader Ginsburg set off a political earthquake that could rattle the fragile economic recovery.
At a minimum, the loss of RBG is yet another wild card for investors, CEOs, small business owners and consumers already challenged by enormous amounts of uncertainty.
The Supreme Court vacancy is shaking up the previously stable battle for the White House, not to mention control of the US Senate. Political crystal balls just got much murkier, with differing opinions on which party benefits the most from the developments.
Worse, the fight over how and when to replace Ginsburg, a hero of Democrats, will suck up oxygen in Congress at a time when the economy is screaming out for more emergency aid from Uncle Sam.
“We don’t see how the parties can reach a stimulus deal in this environment,” Jaret Seiberg, policy analyst at the Cowen Washington Research Group, wrote in a note to clients Monday. “Failure to enact the Phase 4 stimulus will damage the recovery.”
The chances of a major stimulus package getting through Congress were already low. But a complete collapse in talks would guarantee no more help from the federal government until after the election, or more likely early next year, even though the recovery from the pandemic is faltering. That means more small businesses will likely close their doors, state and local governments may have to lay off workers, household spending could weaken and defaults may rise.
Stock sell-off accelerates and is expected to get worse before it gets better
Stock investors focused on new worries about the coronavirus and economy, selling into a market Monday that was already technically shaken and set for further declines.
But Monday’s sharp sell-off was different than the September slump that has centered on tech and growth stocks. Instead it was led by the cyclical names that had been gaining on expectations for a recovering economy, and not so much by the frothy growth names that have been correcting.
“Things had to have changed for investors to be so nervous,” said Sam Stovall, chief market strategist at CFRA. “With Europe starting to see a sharp increase in Covid cases, does that mean they ’re going to reimpose shutdowns?” The U.K. government’s top scientists warned the country could expect to see almost 50,000 new coronavirus cases per day in mid-October if no action is taken.
“Because the recovery from the earlier Sept. 8 low was so anemic, it was an indication that the market needed to go through more backing and filling before it’s ready to advance,” said Stovall.
Technical analysts say the market has seen a breakdown that could take the S&P 500 to its 200-day moving average at 3,104 or even lower.
Central bank head: Europe’s recovery uncertain, incomplete
The head of the European Central Bank says that the economy is rebounding but that the recovery remains uncertain, incomplete and dependent on containing the virus outbreak.
ECB President Christine Lagarde told a joint meeting of parliamentary deputies from France and Germany on Monday that incoming data suggest a strong economic rebound in the third quarter, that is, July through September. But she added that “the strength of the recovery remains very uncertain, as well as uneven and incomplete.”
“It continues to be highly dependent on the future evolution of the pandemic and the success of containment policies,” she said.
The ECB is pumping 1.35 trillion euros ($1.6 trillion) in newly printed money into the economy through ongoing bond purchases through the end of next year. That is a large-scaled monetary stimulus aimed at preventing the pandemic from causing turmoil in financial markets, and at keeping borrowing costs low for companies to help support growth.
The European Central Bank is the chief monetary authority for the 19 countries that use the euro, analogous to the Federal Reserve in the U.S. or the Bank of England in Britain.