What is the potential of a double-dip recession?

Mikhail Karkhalev

The majority of analysts and investors expect a second financial market crash. Hoping that the markets manage to recover and avoid a new plunge would be unreasonable. The key question is not if the markets will tumble again, but how deep.

As I mentioned in my last article, all the crises in recent history featured more than one crash. Within the first 18 months from the start of a crisis, the markets would experience 2 or 3 falls. This is mostly due to the accumulation of issues faced by the hardest-hit industries and businesses.

An owner of a large corporation cannot possibly forecast all the effects of a crisis correctly; and each of their decisions – from layoffs to production stoppages – will influence the company's stability. It takes a year to a year and a half to evaluate the impact the recession on the business and the correctness of the decisions taken.

At the same time, by launching an anti-crisis strategy, the executives trigger a sort of domino effect, affecting both the company itself and its suppliers and customers. Their problems, in turn, affect the economy as a whole, as revealed by the macroeconomic data and financial reports.

Revisiting the results of Q1 2020

Let's go a few months back. On March 13, 2020 the US government declared a national emergency due to the spread of Covid-19. Some of the states had gone into lockdown a few days prior. Just 2 or 3 weeks were enough for the largest corporations most affected by the lockdown to produce weak Q1 results (since March marks the end of the first quarter). Here is some data from the reports published by 6 US corporations from very different industries:

  1. United Airlines: a Q1 loss of $1.7 billion – more than in Q3 and Q4 2019 put together.
  2. JP Morgan Chase: a net Q1 profit of $2.87bn – 3 times less than in Q4 2019 ($8.52bn).
  3. Exxon Mobil: a net loss of $0.61bn – as opposed to a net profit of $5.69bn in Q4 2019.
  4. Whirpool: a net profit of $0.15bn – twice less than in Q4 2019 ($0.29bn);
  5. Gap: a net loss of $0.93bn, which virtually nullified the company's total profits for 2019 ($1bn). The overall revenue fell from $4bn to $2bn.
  6. Marriott: a net profit of just $30m, as opposed to $280m in Q4 2019.

These are just a few out of hundreds of companies that experienced the power of the approaching recession at the very end of the first quarter. The disaster was far from over, though: the pandemic continued spreading, only peaking in late May. As Q2 is closing, the coronavirus is receding and people are returning to the offices, parks, and malls, naively believing to have left the worst of it behind them. 


  1. More US citizens died of Covid-19 than in the First World War.
  2. The quarterly GDP of the US fell by 5%, and the annual GDP is expected to decrease by 6%, according to the World Bank. The unemployment rate is up 13.35 in the United States. The GDP of the UK is down a shocking 24.5%. Normally you'd only see such figures during major wars.
  3. Financial regulators in Europe, North America and Asia keep trying to stimulate the economy by printing unprecedented amounts of unbacked money. Considering how cautious they are usually their present actions hint at panic.
  4. A new outbreak has begun in Beijing: some are already calling it COVID 2.0. Doctors say that this might be a new mutation, more contagious than the original. Considering the deplorable condition of the US and global economies, they wouldn't survive a new lockdown.
  5. Nobody knows what to do – and this is probably the biggest of the current challenges. I won't even mention the protests in the US, which are now spreading to Europe. 

A second downward wave

It's very likely that the markets are already beginning their second downward slide, since there are just weeks left before Q2 reports are published. If just 2 weeks were enough at the start of the lockdown to get the largest corporations into serious trouble, after 3 months we're bound to something far more disastrous. I expect that S&P 500, which consists mostly of the companies that took the strongest blow, will go down all the way to 2100 – the mark it took the index so long to breakthrough between 2015 and 2016.

What's next for cryptocurrencies? 

The crypto market is also likely to crash again, but the dip won't be as dramatic as on March 12 and 13. First of all, crypto – while an alternative asset – is risky by default. During periods of crisis, investors tend to convert their risky assets into cash. Second, the crypto market is strongly influenced by that of derivatives, especially by what happens on the CME. Note the parallel movement of the open interest (yellow line) in Bitcoin futures on the Chicago exchange and the BTC price (blue line) in May: the two are virtually identical.


Since most CME traders are traditional investors, not crypto enthusiasts, they will do what traditional investors do – cash out. A lot will depend on how crypto traders and investors react: will they give in to a new panic sale? The only question left to answer is this: why should the traditional market hit a new low while the crypto market won't?

It's quite simple, actually: both fundamental and technical analysis point to the weakness of the stock market. The reigning sentiment is bearish. By contrast, the crypto market has positive fundamentals. Technical analysis predicts a short-term slump, but the overall sentiment is rather bullish.

To sum up: the stock market is likely to crash again within 6 to 8 weeks, probably hitting a new long-term low. The crypto market will experience a minor plunge to $7500-8000 for 1 Bitcoin. I doubt that we'll see a much deeper correction, since a new rally is already on the horizon.