It was the best of times, it was the worst of times. April was a Dickens of a month. But what lies ahead? Let’s take a closer look.

A look back

The best of times. April was the month that stock markets rallied after an unprecedented drawdown. U.S. markets were up by double digits, international markets gained, and fixed income markets came back as well. From a market perspective, it was a great month—an unprecedented bounce that took us from a bear market to a bull market at the fastest pace in history.

The worst of times. On the other hand, tens of millions of people lost their jobs, at a pace never before seen. Large swathes of the economy continued to be shut down. In fact, according to the most recent data, the first quarter ended in a recession. The second quarter is likely to look much worse, and we will probably see statistics that the country has not seen since the Depression.

The discrepancy between what the economy is saying and what the financial markets are doing is (to use the term again) unprecedented. The story of April and of May will be what that discrepancy means and how it resolves.

A policy depression. Looking back at April, all of the bad news was indeed correct. But it leaves something out. First, this is not an economic depression; this is a policy depression. The layoffs and the business shutdowns did not come from a lack of growth—the economy was doing quite well through most of March—but from a medical emergency, the coronavirus pandemic. Because this is a policy depression, it did not follow the rules for an economic depression. It is faster and will likely be deeper than anything we have seen in our lives. That scenario is what we are seeing right now.

Because it is a policy depression, however, there is also the possibility that when the policy changes, the recovery will be similarly quick. Just as policy locked down the economy, in theory, policy can also open it back up.

Signs of improvement. As we moved through April, there were signs that theory might be accurate. The policy decisions were driven by the rapid spread of the virus, and we started to get that under control in April. The daily growth in cases dropped from 16.8 percent on April 1 to 2.9 percent on April 30, a decrease of more than 80 percent. Testing rose from 107,582 on April 1 to 220,522 on April 30, more than doubling. While both of these stats are still not where they need to be, we ended April in a much better place than we started.

The same story was true, to a lesser extent, for the economy. While layoffs continued at a rate of millions per week and business shutdowns did the same, on a weekly basis, both declined through the month. Much of the damage has already been done, and the future hit should be less hard. Offsetting that damage, even as the layoffs and shutdowns hit, we also saw the federal support for individuals and businesses ramp up. Individual checks, expanded unemployment insurance, and forgivable federal business loans are now flowing into the economy, which should mitigate the damage. While the damage is real and continuing, April may have been the worst of it for the economy, just as March may have been the worst of it for the pandemic. Passing that peak damage would set the stage for improvements in May.

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