What happened

It's been a crazy day in the stock market Wednesday, with the S&P 500 inching only modestly lower but shares of stocks tied to the travel and vacation industry falling off a cliff.

At 12:30 p.m. EDT today, shares of hotelier Marriott International (NASDAQ:MAR) are off 3% after being down nearly 7% earlier in the day. Casino operator Eldorado Resorts (NASDAQ:ERI) is sliding 5.1%, and cruise line operator Carnival (NYSE:CUK) (NYSE:CCL) is down a staggering 7.8%.

3-D rendering of scary looking viruses on a red background

Image source: Getty Images.

So what

If you have to guess, blame the coronavirus. On Friday, the S&P 500 finally got back all it had lost since 2020 began, while the tech-heavy Nasdaq actually set an all-time high. And yet, despite the positive news out of Wall Street, the fact remains that the coronavirus is still out there. No vaccine has been discovered, nor do we have a proven cure once a person is infected.

In short, we're not safe yet. And amid this unsafe situation, we just heard Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, warn that the pandemic isn't over yet. Worse, the Organization for Economic Cooperation and Development (OECD) just issued a warning about a potential second wave of coronavirus cases.  

Couching her prognosis in the form of two scenarios it considers equally likely, OECD chief economist Laurence Boone says the "single hit" wave of COVID-19 cases that we're currently undergoing will cut U.S. GDP by more than 7% this year. The good news is that this should give rise to better than 4% growth in GDP in 2021. (The bad news is that it might not.)

In the event of a "double hit" (a second wave of COVID-19 emerging probably during the fall flu season), U.S. GDP could fall as much as 8.5% this year, and next year's recovery would be cut in half to less than 2% growth. Unemployment rates under that second wave could soar as high as 16.9% for this year, and remain above 10% through most of next year.  

Now what

More than just the unemployment effects on consumer income and spending (which would not be good for travel and vacation-related businesses), there's the psychological effect to consider.

When COVID-19 first hit us, the U.S. stock market suffered its fastest, sharpest contraction in history, falling 35% in less than a month's time. Fears of a second wave of coronavirus causing a similar meltdown, with that first meltdown still fresh in our minds, could become a self-fulfilling prophecy, driving down stock prices even more than they would ordinarily fall in response to the economic contraction.

This is the dire prospect that the OECD has just outlined for us, and even if it only puts the chances of it happening at 50-50, that's more than enough reason to reintroduce fear into the stock market today.