According to George Maris, the co-head of equities of Americas at Janus Henderson, an asset manager with $370 billion in AUM, a recession in the U.S. clearly remains a near-term risk, which could fully reverse the bullish trend of the U.S. stock market.
“It’s [a U.S. recession] clear a near-term risk. If we can’t get trade negotiation results favorably, we’ve got weakening investment to look forward to. I mean there’s going to be a problem,” Maris said on Bloomberg Markets.
The Janus Henderson executive outlined geopolitical risks, domestic politics, and various uncertainties surrounding the U.S. stock market as the core issues that may lead to a full-blown recession in the near future.
Over the last seven days, major indexes in the U.S. stock market in the likes of the Dow Jones and the Nasdaq Composite have retraced following a strong few weeks in January.
While some analysts have said that the recent momentum of the Dow and its peers has convinced retail investors to invest in the U.S. market, fundamental issues remain unchanged.
Primarily due to the domestic politics in the U.S. and the focus established on strengthening the southern border, Maris said that the appetite to move forward from both investors and companies has declined.
“Given the political issues in the United States, there seems to be very little appetite to anything done, so it will be hard to get fiscal expansions, whether it is infrastructure-based or otherwise; tax cuts, etc. to happen is going to be unlikely.”
Considering the state of U.S. politics and the lack of significant progress in the U.S.-China trade talks, the Janus Henderson executive emphasized that risks of recession will inevitably elevate.
“So with that kind of uncertainty happening over the economy, you know recession risks are going to elevate,” he added.
The executive echoed the sentiment of Nobel Laureate Paul Krugman, who said that the U.S. market is in a worse place than it was 10 years ago during the Great Recession.
In the last ten years, Maris explained that the ammunition or the options of the central bank to prevent a recession have declined, which increases the probability of a recession in the upcoming years.
The Dow, S&P 500, and Nasdaq are currently waiting on the outcome of the U.S.-China trade talks with low volatility and a relatively high level of stability.
If the U.S. gets a comprehensive trade deal accomplished by March 1, most of the risks involved in the market could be eliminated.
However, Maris warned that in a possible scenario in which a trade deal is not achieved, there exists a possibility of a steep downturn in the market.
“If you get trade resolved, then you can start to see those risks diminish. I think what Paul Krugman was talking about was, in fact, there is less central bank ammunition to fight off any sort of recession or financial crisis that we had in 2008 and I think he is right with respect to that.”
If a recession occurs in the next year or two, Maris stated that it will not reflect the disastrous impact the previous 2008 financial crisis had on the U.S. economy.
The fundamentals in the local economy remain strong with employment rates and household balances sheets at record levels.
“The actual fundamental elements of the economy are good,” the executive said, adding that even if a recession occurs, the effect it could have on the U.S. market is limited.
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Last modified: July 2, 2020 8:16 PM UTC