The S&P/ASX 200 Index (ASX: XJO) is enjoying a period of relative stability after an absolutely tumultuous first 2 weeks of March. The ASX 200 has hovered around the 5,000 point mark now since mid-March – sometimes dipping above, sometimes below, but maintaining a support level all the same.
Many nervous investors are now awaiting a catalyst to push the markets decisively one way or another. Remember, we are still more than 25% off the highs that mid-February brought us.
That eventual catalyst may be something good such as a downturn in new coronavirus cases, or something bad, such as a record-high unemployment rate.
And it's the latter that we'll discuss today.
According to BusinessInsider, economics Nobel laureate Paul Krugman sees unemployment over in the US rising to 20% within 'a few weeks'. That would put the number of jobless Americans at the highest level since the Great Depression almost a century ago.
If this eventuates, it could be a catalyst for yet another plunge in the US share markets – and by extension, our own ASX.
What would high unemployment mean for ASX shares?
High unemployment is a truly terrible situation for an economy and society to be in.
Apart from the obvious damage unemployment has on our social fabric, it also causes huge disruptions in economic activity. Clearly, anyone unfortunate enough to have lost their job will cut down on spending. That, in turn, can cause falls in business activity, which can then result in even more people being let go from struggling companies.
It's a vicious cycle – and one that bodes extremely poorly for ASX investors if it eventuates here in Australia. Even if we are spared the ravages of high unemployment here, if it occurs in the US, it will be a major drag on the performance of our own economy and our own stock market by extension.
It's a bleak prospect which I take no joy in discussing. But the way the global economy is currently sitting, it's still a distinct possibility – and therefore I think all ASX investors should be prepared for it if the worst does happen.
So whilst I'm glad the markets are responding positively today, I'm holding my celebrations until we get some more clear positive signs that the end of this crisis is in sight before I'm prepared to discard the possibilities of further market falls. I could well be wrong here, but I would rather be caught short over a rally than caught long over a crash.
