Donald Trump is aggressively pushing to reopen portions of the U.S. economy as early as May 1. That’s seemingly bullish for the stock market, but the president’s plan has at least one prominent analyst extremely worried.
Ritholtz Wealth Management CEO Josh Brown fears that Trump’s lockdown exit strategy could reignite the stock market crash that many investors thought was in the rearview mirror.
Stock market bulls have responded positively to the decisive efforts of U.S. officials at the state and federal levels to crack down on the spread of the coronavirus.
Given the slowing of the spread of COVID-19, an anxious President Trump with one eye on November and the other on sliding poll numbers has amped up his plan to kickstart economic activity as soon as possible.
Unfortunately, the timeframe Trump is touting is so rapid that it has CNBC commentator Josh Brown worried that the stock market won’t respond well when the economy does reopen.
Speaking on “Markets In Turmoil,” Brown ominously warned that this development could actually be a negative catalyst for the stock market.
We are all talking about the reopening of the economy as though it’s a positive catalyst. What if it’s a negative catalyst? Try to imagine a scenario where people are faced with the choice of staying home or going to a restaurant and having to lift a mask up… how many people are going? Imagine the airlines – what if they have to fly half the amount of people?”
It’s almost a guarantee that economic activity is going to change. The question is to what degree. And households being spooked by the reality of a “new normal” is only one of the risks investors may not be pricing in.
Perhaps the most dangerous threat to the stock market is the possibility of a second wave of COVID-19 infections.
Brown says that could “crush” the stock market:
The worst thing that can happen is we start to roll back stay-at-home orders, people get too comfortable, and we have a resurgence [of coronavirus]… What would that do to the stock market? It would crush investor sentiment.
While there is a marked difference in rhetoric between President Trump and Governors Newsom (California) and Cuomo (New York), they are all talking about exit strategies .
New York has shown apparent stabilization in new cases of COVID-19, while California’s early and decisive action kept its curve relatively flat.
Eurozone nations are also considering their options, with member nations Spain, Austria, Italy, and Denmark all starting to ease lockdowns .
Throw into this mix that China has been reporting some decent data as the world’s second-largest economy emerges from its deep freeze.
There is no question this has been a big boost to Wall Street. Investors have looked at the progress and gotten excited about a quicker than anticipated recovery.
All this optimism is what scares Josh Brown, and his point is a compelling one.
Stock markets crash when equities are not adequately priced for risk. And by all accounts, the Dow Jones is behaving like it will be business as usual in a few months.
It is not likely that this will be true under the best-case scenario, and a second wave of the illness is a potential black swan if markets take it for granted.
Trump’s scheme to aggressively resume activity is a high-risk tactic, and his decision to put his daughter and son-in-law on the panel charged with crafting the White House’s lockdown exit strategy has been met with derision.
Then there’s the issue that the White House probably doesn’t have the authority to order any state economy to reopen, with litigation inevitable if he does.
All these signs point to a staggered open at best, with the nature of life’s “new normal” depending on your home state or even town.
And if any of Josh Brown’s warnings come true, another leg lower in the stock market remains very much on the table.