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What is a K Shaped Recovery?

November 05, 2020

What is a K Shaped Recovery?

A K shaped recovery occurs when different parts of an economy recover at different rates. One part will soar to new highs, while the other part continues, on a downward trajectory. There is evidence that this is currently happening in our own economy. If you think about it, the stock market has continued to soar close to new highs, while GDP numbers and employment rates are both down substantially versus one year ago. How does this happen? For starters, the market has been propped up mostly by the tech sector. Internet & cloud services such as Zoom, Amazon, & Facebook, to name a few, skyrocketed after the pandemic while other parts of the economy – airlines, energy, office space, malls, etc. took a nose-dive. “This has created enormous inequality not just in the performance of economic segments, but in society more broadly. On one side, tech fortunes reached all-time highs, while lower income, blue collar workers and those that cannot work remotely suffered the most.”[i] Situations like this exacerbate inequality. If you look at the numbers, 52% of stocks and mutual funds are owned by the top 1% of earners. Hotel workers are not able to work virtually, and on average, they own few to no stocks, so it’s really a double whammy for them and other blue-collar workers. They are missing out on their income and the growth of the stock market at the same time.

While the jobs numbers and GDP numbers are headed in the right direction, we still have a way to go before we’re anywhere close to pre-pandemic levels.  The recovery of these lagging industries hinges on a COVID-19 vaccine. The sooner these industries can return to normal and workers can get back to a safe working environment, the better. We believe there is massive pent up demand for these goods and services, which will help spur the GDP numbers. Americans want to get back to “normal”. They want to be able to travel again and not worry about wearing a mask to the grocery store.

In the meantime, there are currently talks in Washington to enact a second stimulus bill to help these Americans while we wait for a vaccine. It’s not clear when and what size a potential stimulus bill may look like, but we continue to watch for any concrete news. A lot is riding on the outcome of the current election and only time will tell.

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