Garnet Capital Advisors Blog

EXCERPT:  Much of the market gyration that is happening right now is likely psychological and not necessarily based on the underlying market or economic health. Some experts agree that the economy and markets will soon return to normal, despite the state of the current situation.

Comments leaked from a recent conference between Goldman Sachs and merchant banking clients suggest that the economy will return to normalcy sometime in 2020.

The way things look right now economically, one might argue that the dire state of the economy - both domestically and globally - will last for months, perhaps longer. But some experts anticipate that some degree of normalcy will be returning to the markets sooner than we all might think.

Goldman Sachs Suggests the Economy's Return to Normalcy May Happen Sooner

According to a recent article published in Forbes, Goldman Sachs held a conference last week with a group of their merchant banking clients and reassured them that today's situation would be short-lived. While politicians and scientists all over the globe are in a frenzy over the novel coronavirus, those who participated in the call seem to place less weight on the effects of the virus on the global economy.

In fact, comments on the call suggested that stock markets would be able to completely recover from the downfall over the coronavirus as soon as the second half of 2020. The call continued on a positive note, alluding to the lack of systemic risk to global finances. However, the call wasn't entirely focused on the ability of the global economy to quickly bounce back: the seriousness of the virus to human health and its rapid spread was acknowledged.

The coronavirus outbreak has wreaked havoc on stock markets and the global economy, leaving many to wonder how long these dire effects will last.

While the meeting was private, someone on the call took notes and leaked them, which are now circulating across social media and various messenger apps. In response, Goldman Sachs is attempting to play down those comments.

That said, Goldman Sachs did recently put out an economic research report that seemed to support the leaked comments and communicated the bank's assumption that activity will bounce back sometime after April and that the second half of the year would start to see some significant growth.

More specifically, the paper anticipates flat economic growth over Q1, a 5 percent decline over Q2, a 3 percent gain in Q3, and another gain of 4 percent in the last quarter of 2020.

However, the strength of this growth will depend on a number of factors, including the effect of social distancing, the impact that the warmer temperatures may bring to reduce infections, and the possibility of treatments to come about. It will also depend on how much support will be provided based on fiscal policy.

Of course, these are predictions, and with the fluid situation surrounding the coronavirus, anything can change from one day to the next.

Financial Institutions Encouraged to Hedge Against Risk Amidst Times of Economic Uncertainty

At the end of the day, this, too, shall pass. The economy will eventually return to normal, though it remains to be seen how long that will take. In the meantime, banks and lenders are encouraged - especially during this time of economic difficulty and uncertainty - to take a closer look at their loan portfolios and make any necessary changes to revamp them. 

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